DeFi Protocol MakerDAO Adjusts Stability Fees

Stablecoins play a crucial role in the world of cryptocurrencies. These coins are tied to the U.S dollar, and so the value will always be around $1, which makes these tokens useful to rely on for the purposes of trading as well as storing crypto safely whilst waiting for a dip or a way for investors to keep their funds without experiencing any major fluctuations while they decide on what coins to invest in. Stablecoins are also useful for the purposes of farming and for sending crypto to other users’ wallets.

To that end, there are quite a few stablecoins available in the market, such as USDT (Tether), DAI, BUSD, and USDC. This article will mainly focus on DAI, as MakerDAO is hopeful that demand for this specific stablecoin can be increased after the planned reduction in fees.

MakerDAO is a DeFi lending as well as stablecoin protocol that has now decided to adjust its stability fees over a wide variety of different cryptocurrency assets to be utilized as collateral.

Demand for stablecoins has cooled

The aforementioned decision comes during a time when the overall demand for various stablecoins, including DAI, has managed to cool a bit following the recent retracement of the cryptocurrency market. MakerDAO is optimistic in its belief that demand can be driven up for minting DAI through reducing fees.

When users tend to deposit cryptocurrency assets in order to mint DAI, the accumulated debt would normally incur a fee pertaining to stability. This fee may be understood as interest that is continuously accruing, which is also due when the borrowed tokens have been repaid. These stability fees are therefore implemented in order to sustain DAI’s link with the dollar, mainly because whenever the CDP (collateralized debt position) holders mint any amount of DAI which is more than what the market may demand, the stablecoin’s price may drop beneath $1.

Flash loan functionality

The token holders recently decided to have a vote through which it would be decided whether flash loan functionality should be implemented or not. If the vote is cast in favor of this decision, then 500 million DAI at the most will be allowed to be minted via various individuals for the purposes of flash loans, thereby eliminating any pre-existing constraints which may be limiting the loans’ value.

Furthermore, this value is based on the total volume of the liquidity that is available within the respective lending pools.

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