Is MakerDAO Increasing Their Stability Fee Again?

By Rishma Banerjee

As it seems, that on 19th April, another vote about whether to raise the so-called stability fee for Maker’s ethereum (ETH)-based DAI decentralised stablecoin by 3% has started on the governance portal of the Decentralized Autonomous Organization (DAO).

MakerDAO, which issues the USD-pegged aforementioned algorithmic decentralised stablecoin, is seeking to improve the token’s peg by increasing the yearly stability fee. The Stability Fee is a bit like an interest rate on Dai. Users who lock ether into a collateralised debt position (CDP) contract to obtain Dai are charged interest over time, and this interest is known as the “stability fee.”

MFRIRT in their announcement noted three significant reasons for yet another increase. This is being done in the hopes that the exchange price persists below $1, high inventory levels can be ensured among market makers and prop desks and the little attributable impact from the previous Stability Fee increases.

It was just in March that DAO raised the stability fee twice, first to 3.5%, and then to 7.5% per year.  Last week, the fee was further increased by another 4% in the fifth such vote this year, bringing it to 11.5%, where it currently stands. If the increase is accepted again, the fee will reach 15.5%.

The proposal also notes that the need for the increase has been discussed in the governance call on April 18, of which a video has been uploaded to YouTube. The community expressed a mixed response in the comments to the announcement of the vote on Reddit.

One user expressed concern, stating that the frequent changes to the stability fee, according to him, turns the system into an unpredictably short term leverage system. Other users noted that raising the fee to improve the peg apparently isn’t working.

It was reported in mid-March that a senior advisor for digital assets at the United StatesSecurities and Exchanges Commission,Valerie Szczepanik reportedly noted that algorithmic stablecoins could experience issues under current securities laws.