MakerDAO slashes stability fees as stablecoin demand wanes

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Maker hopes to reignite demand for its DAI stablecoin through the fee reduction.

Decentralized finance lending and stablecoin protocol MakerDAO has adjusted stability fees across a wide range of crypto assets used as collateral on the platform.

The move comes as the demand for DAI and other stablecoins has cooled amid the recent crypto market retracement, with Maker hoping to drive up demand for DAI minting through the reduction in fees.

When users deposit crypto assets to mint the protocol’s stablecoin, DAI, the debt incurs a stability fee which is effectively a continuously accruing interest that is due upon repayment of the borrowed tokens.

Maker’s fluctuating stability fees are designed tobit-cointalk.com/news/dai-has-been-struggling-to-maintain-its-1-peg-but-the-makerdao-community-believes-it-will-soon-be-cryptos-default-stablecoin”> 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.

Increasing the stability fee pushes up the cost of borrowing DAI, reducing demand for minting the token. Conversely, reducing the fees, as MakerDAO has just done, drops the cost of borrowing DAI to stimulate demand.

DAI’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 the stablecoin has slowed amid an accelerating downtrend in crypto asset prices and falling activity in the DeFi sector.

Related: bit-cointalk.com/news/analyst-says-defi-and-stablecoins-held-up-well-as-crypto-markets-imploded”>Analyst says DeFi and stablecoins held up well as crypto markets imploded

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 bit-cointalk.com/news/shift-toward-full-decentralization-pushes-maker-mkr-price-above-4k”>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 $2,200 at the time of writing.