[Signal Request] Rates V2

The rates working group would like to present the results of our discussion over the past 2 weeks into a formal proposal. We originally had a large document explaining how to adapt the formula from the current system, but as mentioned in this post we kept running into edge cases. Based on the results of the informal poll we have stripped down the proposal to the points below.

Current Issues:

  • Smart Contracts team finds it hard to follow how Base Rate change affects final Stability Fee for all assets
  • Governance shouldn’t be directly changing Risk Premiums or should stop calling it Risk Premium.
  • Base Rate change is affecting all assets instead of only few that have similar profile
  • Risk premium should be ideally measured and reported continuously. However we may not necessarily want to equal it to the final markup used on top of Base Rate.
  • No mechanism for taking competition into account.
  • Farming assets do not fit into our current rate setting paradigm at all. They should be set based on the yield they generate.


  • Formation of a new Rates Working Group which sits between Risk, Governance and the Smart Contracts Teams.
  • Grant more rate setting autonomy for the Rates Working Group to allow them to more flexibly update Stability Fees.
  • Add market competition-based rate setting methodology.
  • Minimize governance overhead.
  • Continual transparency of how rates are set.
  • Governance provides higher-level, plain-English business directives such as “set the stability fees on stablecoins to 0%” or “we want to focus on growth over profit”. These directives will follow the signal request format until a more formal MIP is created.


  • Scrap the current Stability Fee formula involving the Base Rate. The Base Rate will no longer be voted on after this proposal passes, and a MIP18 vote will be added to deprecate it formally.
  • Formation of the Rates Working Group. A somewhat loosely defined group consisting of Domain Team Facilitators and community members. Initial members being @hexonaut, @Primoz, @LongForWisdom, @monet-supply, @SebVentures and @Akiva .
  • Introduction of the Competitive Rate: A rate which is based on the competitive landscape. For example if our competition is offering borrowing at 5% for a particular asset, we may decide to offer that same asset for 4%.
  • The Rates Working Group will keep track of governance directives, risk premiums and competitive rates to produce a set of stability fees for each vault type. Mostly this will involve setting the rates by competitive analysis coming from risk.
  • The Risk Team will start producing Risk Premium / Competitive Rates on a monthly basis which get handed off to the Rates Working Group who will propose the Stability Fee rate changes.
  • Dai Savings Rate will remain at 0% until governance signals otherwise.
  • Development of a more formal MIP as this process is smoothed out.

Responsibilities for the Rate Setting Group

  • Weekly meeting to determine adjustments.
  • Produce a rate adjustment proposal based on input from governance (in the form of signals or feedback), the Risk Team (Risk analysis), and from observation of the wider DeFi environment.
  • Forum post whenever adjustments are proposed including rationale and inviting discussion. Forum posts will be made 1 week in advance of the on-chain poll unless the changes are considered an “emergency”.
  • Bundled on-chain poll containing any proposed rate-changes for the week.
  • MIP to be produced within 6 months, group ceases to operate if MIP is not passed within 6 months. Deadline is April 1st, 2021.
  • Yes, I would like to proceed with the above proposal
  • No, I do not want to proceed with the above proposal
  • Abstain

0 voters

Signal request will run for 9 days ending on Friday October 9th. If successful, an on-chain poll to confirm will be crafted for the week of October 12th.


Totally loving this. Thank you so much to ALL the Rates Working Group Members–I really appreciate your hard work & dedication.

Just a basic question from me–with regards to “Competitive Rate”, is there any intention to try to make a “spread” at all, or at times it won’t matter–we just need to have a competitive product out in the market? I guess what I am trying to ask–will there be any margins at all?


Well, if it´s not competitive there will be no margin anyhow, right?

I agree on competitive rates but taking into account the singularities (both pros & cons) that maker offer to vault users

Edit: if all players compete on a cost basis the cake will be smaller by the minute, that´s why I would like that it be taken into account a differenciation in the product

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Is there any quorum required for this signal request like 40 votes etc? If not, why not?

So ideally there should always be some spread between risk premium and SF, because risk premium equals expected loss and DAO always wants to make some margin in order to cover operating costs and MKR burn. That spread should be covered by competitive rate which is in line with market rates (considering adjustments for different type of product in relation to LR and other differences when comparing to secondary lenders)

We may though come into a position at moments where RP > competitive rate and in that case we would need to decide whether we want to compensate risk fully or prefer growth. This is where governance can already help us already with some guidance. Another example of a more unusual rate setting is USDC SF where we might want to lower it to 0%, but we know both competitive rate and risk premium are > 0%. This means that in some cases we may not even use RP or competitive rate as an input when proposing final SF.


There isn’t a fixed quorum, no. This is because it’s not an urgent signal request.

If I don’t feel like it’s gotten enough votes by the time it ends, I might ask the author to extend it.

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I wanted to say great job on putting this together and issues remaining I expect will be smoothed out as the process continues.

Good luck with this one as the more assets are added I don’t expect this whole rate setting job to get easier. I also think it is going to be very difficult to evaluate the whole competitive environment aspect.

There parts are important:


Thanks for the feedback guys. In the interest of transparency, I have made the point about the Base Rate explicit in that we will no longer be voting on the Base Rate if this proposal passes. It was brought to my attention that the original wording was unclear.

In that case & if it were to pass through the voting pipeline we would have an executive to adjust the base rate to 0 if it were a different value? Given the current poll results indicate a -2%

The plan is for the Risk Domain Team to begin producing Risk Premium / Competitive Rates starting from the week of October 19th (provided the proposal passes on-chain). The Rates Working Group would then propose an initial set of changes which would override the last voted Base Rate as we are no longer using it. After that we will move onto a monthly cycle of rate setting as outlined in the plan.


What will the team do if there is a conflict between setting competitive rates, and setting rates to stabilize Dai?

Which one will take precedence?

Well Dai is now stable on the upside from stablecoin exposure. On the downside competitive rates will basically subsume the base rate in that borrowing will naturally become more expensive during bull runs. So really there isn’t a conflict.

Do you mean that overnight rates may no longer be competitive during bull runs?

Once the colateral portfolio is diversified away from crypto, what becomes the definition of a bull run? It may become a more common phenomena. I believe a robust approach should address that as well.

Anyways, we can talk more about it after this passes :slight_smile:

I’m basically using old-school terms to cover the case where ETH is still dominant and goes on a bull-run, but yes you are right we are not in the same setup as SCD and we should adjust appropriately. Controlling oversupply is a much easier problem than undersupply and we can use a number of tools such as rates, debt ceilings, etc. Happy to hear your thoughts on the first call.

Poll closed with a very strong Yes vote. An on-chain governance poll will go out on Monday. Thanks for the feedback everyone.

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