What is Stability Fee

DAI is backed by collaterals. Through this system DAI can be pegged to 1 USD as an stablecoin. To stabilize the DAI peg, system must keep 1:1 rate of DAI minted (lent) and collaterals value locked. This requires a control on flow of minting and collaterals. Normally, stability fee is used to incentivize users to provide collaterals in times of declining the value of collaterals. A stable fee is a variable interest rate of the Maker's smart contract for borrowing DAI. Stability fee will be changed anytime holders of Maker's vote on proposals put forth by the MakerDAO Risk Teams.

What is DAI?

DAI is a decentralized stablecoin that is backed by multi-cryptocurrency as collateral. When a user adds collateral through the authorized Maker Protocol, a new DAI will be minted.

DAI initially only supported Ethereum as collateral. However, by adding more types of tokens in gradual it turned from single collateral to a multi-collateral (Source: The Dai Stablecoin System Whitepaper, 2017).

What is Maker Protocol?

Maker protocol is a decentralized (smart contract based) platform for lending and borrowing.

Users are allowed to borrow DAI by providing a set of assets, including wETH and USDC, as collateral.

Users are also enabled to create a vault and provide liquidity as lending assets and in return receive interest.

How does stability fee impact the DAI minting?

When DAI holders vote for a decrease in stability fee, it will imply that the governor wants to encourage users to borrow (mint) DAI. Om the opposite, when the stability fee is increased meaning that the demand of DAI is growing.

What are the major changed in stability fee?

Stability fee changes are based on the risk teams suggestions and the approval of Maker.

Any changes in smart contract are publicly announced. Therefore the record of changes can be listed.

I used @makerDaibot Twitter account to find stability fee changes.

In total, 35 announcements have been found in this Twitter account.

Note: The following search query returns all changes in stability fee.

>https://twitter.com/search?q=%22Stability%20Fee%22%20(from%3AmakerDaibot)&src=typed_query

Major stability fee big increase

Four major increases in stability fee have been found:

--https://twitter.com/MakerDaiBot/status/1423671890992840708 0_6-7%;
--https://twitter.com/MakerDaiBot/status/1453779911269826563 0_4%;
--https://twitter.com/MakerDaiBot/status/1462783877903228929 0_7%;
--https://twitter.com/MakerDaiBot/status/1361396457346125824 0_4%;

The graph below shows the daily amount of DAI mints. We can see that those selected major increases in fee stability did not lead to a lower volume of minting as it is expected.

The graph below shows the daily number of mints over time. We can see unlike the amount of mints the number of mints has decreased in short term after any of increase in stability fee.