Maker Stability Fee Increase May Boost MKR Price

MakerDAO has casually reintroduced stability fees for the ~$900M worth of DAI now in circulation.

Maker’s MKR holders voted to raise the protocol’s stability fee – similar to interest rates for Dai borrowers – to 2% for ETH collateral from 0%, the highest since January. The reintroduction of stability fees sets Maker on track to capture roughly $27M in annualized earnings.

Image Source: Ryan Watkins, Analyst at Messari

MKR Demand

In Maker, stability fees are paid in MKR (or DAI then used to buy MKR) and then burned. This pseudo-buy back mechanism was designed to stimulate demand for MKR as the supply of DAI grows. However, despite DAI growing from 100M DAI to nearly 900M DAI over the span of the past 6 months, no stability fees were captured as the protocol sought to incentivize Dai borrowing as it recovered from Black Thursday.

MKR performance reacted accordingly, with the token price hovering around $400 as other major DeFi tokens like SNX, LEND and UMA showcased over 1000% returns over the same time period.

Stability fees for Maker’s thirteen supported assets range from 2% on ETH to 12% on MANA. USDC-B, a secondary bucket for USDC-collateralized DAI for when USDC-A hits its debt ceiling, has a stability fee of 50%.

Move Faster

The reintroduction of stability fees also comes with a more aggressive stance to move faster in line with changing market demand, including an executive proposal to take a more flexible approach to collateral onboarding.

Taking a quick glance at the Maker governance dashboard, the cadence of projects looking to be listed as collateral has never been higher.

Despite a cool off in the wider DeFi yield farming rush, it appears that DAI is continuing its trajectory as the space’s defacto stablecoin, a fantastic sign for DeFi’s poster child project.