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What Is the Role of a ‘Stability Fee’ in a CDP-based Stablecoin System?

It's a variable interest rate on the loan that is adjusted to control the stablecoin's supply and keep its price stable.
Greeks.Live31.10.25

What Is the Role of a ‘Stability Fee’ in a CDP-based Stablecoin System?

A stability fee is a variable interest rate that borrowers must pay on the stablecoins they have generated from their Collateralized Debt Position (CDP). This fee is a key monetary policy tool for maintaining the stablecoin's peg.

If the stablecoin's market price is below the peg, the protocol's governance can increase the stability fee, making borrowing more expensive and encouraging users to close their CDPs by buying the stablecoin on the market, thus driving its price up. Conversely, lowering the fee encourages more borrowing, increasing the stablecoin's supply.

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