GlossaryAdvanced
Stability Fee
An ongoing fee charged on debt minted through a Collateralized Debt Position, functioning similarly to interest on a traditional loan.
A stability fee is an ongoing fee charged on the debt minted through a Collateralized Debt Position (see Kaavon's "Collateralized Debt Position (CDP)" glossary definition), functioning similarly to interest accruing on a traditional loan, and generally must be paid alongside the principal debt to reclaim the locked collateral.
A protocol's governance can typically adjust the stability fee over time, using it as a policy lever to influence demand for minting new debt and help manage the stablecoin's peg.
Examples
- A CDP holder must repay both the original minted debt and the accrued stability fee to reclaim their locked collateral.
- Raising the stability fee is one lever a protocol's governance can use to discourage minting new debt during periods it wants to reduce stablecoin supply growth.