MakerDAO slashes stability fees as stablecoin demand decrease
DeFi lending and stablecoin protocol MakerDAO has adjusted stability fees on the wide range of crypto assets used as collateral on the platform.
The move comes as the demand for DAI and other stablecoins has decreased during the recent crypto market retracement, with Maker hoping to drive up demand for DAI minting through the reduction in fees.
In order to min the DAI, when users deposit crypto assets, the debt incurs a stability fee which is effectively a continuously accruing interest due upon repayment of the borrowed tokens.
Maker’s fluctuating stability fees are designed in order to maintain DAI’s dollar peg, as when collateralized debt position (CDP) holders mint more DAI than the market demands, the stable token’s price could fall below $1.
The increment in stability fee results in the cost of borrowing DAI, which reduces the demand for tokens minting. Correspondingly, reducing the fees drops the cost of borrowing DAI to stimulate demand.
The stablecoin’s circulating supply spiked to an all-time high of $5.1 billion on June 16 but has fallen 6% since then to current levels of around $4.8 billion. Demand for DAI has been low amid an accelerating downtrend in crypto asset prices and falling activity in the DeFi sector.
MakerDAO token holders are currently in the process of voting on whether to implement flash loan functionality. If passed, the proposal will allow a maximum of 500 million DAI to be minted by individuals for flash loans, removing existing constraints that limit the value of loans based on the volume of liquidity available in lending pools.
At the time of writing, 3,184 MKR governance tokens had been mobilized to support the proposal. MKR is currently down 20% over the past 24 hours falling from $2,600 to an intraday low of $2,060 before a minor recovery to $2,119 currently at the time of writing.