Stability fees should always be above 0%

MakerDao is exposing MKR holders to risk when it issues Dai backed by collateral. Risk is meant to be offset through stability fees. Therefor it should be completely obvious to everyone reading this that stability fees are required to net MakerDao a profit to balance out risk.

This is a fact and arguing against it is ignorant. So, with that in mind, MakerDao needs to now raise stability fees to their proper levels and find a different way to correct the peg. *Note that even if stability fees were required to be negative to achieve demand balance for Dai, a portion of that negative stability fee revenue would again be required to go to MKR holders to offset the risk.

The current way MakerDao is being run is flawed. Let us now correct this.

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I agree, but we might be minimizing one risk and increasing another, both the peg and stability fee are needed. We decided as a community to make the peg a priority decreasing the fees to stimulate minting in order to align the peg.
Given that the PSM is posponed at the very least and that a significant amount of dai is expected to be released in the weekend I would wait to see how the peg evolves over the weekend to vote.
Having said that, a 0,25% fee on ETH would significantly increase our total fees and I don’t think the supply will have any significant downturn.

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I agree that the stability fees should always be above 0%. This 0% thing is just mental baggage from the fiat central banking system, not something we should be using in crypto.
When someone is opening a Vault and mints Dai, that person is using a service that should be paid for - even if the stability fee is set to just 0.01%. The 0% stability fee also rests upon the assumption of rational actors in rational market,s and the defi craze in crypto is not even resembling rational. We might just earn some for ourselves from this hype. That is why I am constantly voting for a 0.25% stability fee, but up until now the majority of MKR holders have preferred 0%.

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I knew I was going to get responses like this. I agree with you Mario, but what you are saying here is beside the point. It is not an option to simply reduce the fees to 0%.

Fixing a problem (the peg) in a manner that causes another problem is not a fix at all especially if the fix does not even work in the first place. The peg is off and that is a totally separate discussion and should be addressed, but in a way that still allows for stability fees to offset risk. Anything less I assure you will lead to system failure for MakerDao in the long run.

I know you feel strongly on the subject @FourthStreet, but can you please try to avoid language like the following in the future:

It’s fine to say that you think we’re currently making mistakes, less so to assert it as a fact. Saying that arguing against something is ignorant is also not great.

This language implies that you feel that other members of governance and/or MKR Holders are stupid for making the choices that they have made so far, which I don’t think is correct, or polite.

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I do feel strongly @LongForWisdom

Perhaps too strongly. My impolite actions are a symptom not the cause. I will do my best to hide these symptoms from you all, but if we treat the cause there will be no symptoms to concern ourselves with :slight_smile:

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the stability fee is our main tool for affecting the peg. If we only ever had a stability fee that was exactly compensating for risk on every collateral we would be unable to keep the peg. The goal is not to always perfectly compensate mkr holders for risk, but to on average compensate for risk in the long term.

We are also still in an early growth phase of the maker protocol. Because of this mkr holders should expect that they are taking on extra risk in exchange for rapid growth

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This is one of the only views I have heard on this that makes sense to me. I do not feel it is accurate entirely (I feel like it just kicks the can), but at least it provides a logical side of why MKR holders are taking more and more risk daily.

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Hi @FourthStreet. I highly suggest you start a signal request to remedy your concerns. I am also in the process of championing several proposals to alleviate my own concerns, I suggest you do the same. We as a community are steering this ship. We can’t wait for some authority figure to come do it for us.

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Good idea, I will look into starting that up for some of these concerns.

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At this point, I might even agree. DAI is out of control at +4% anyway. Let’s earn something!

My point is that it is so out of control that even after running at a loss by skipping these important fees to offset risk there is still imbalance. Fixing that is a separate conversation. It needs fixing as well, but the main point I am making here is that the fees are there for a reason and they need to be there.

So what are we(you) going to do about it?

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@Aaron_Bartsch First I am going to talk out my ideas and get a general feeling of what people think does and doesn’t make sense to actually fix the issues properly. After that I am going to create or support proposals to do those things. :slight_smile: want to help. It looks like you might be interested.

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Increasing stability fees on ETH when DAI is so far above the peg could signal to users that Maker governance doesn’t take its monetary policy responsibilities seriously. I think the amount of fees we’d be able to extract from ETH vault now are small compared to the potential value we’d gain from earning more market share, and won’t have a big impact on our ability to cover losses either.

Taking the example of raising ETH stability fee to 0.25%:
0.25% APR * ~200,000,000 DAI borrowed = ~500,000 DAI per year earned
Not an insignificant amount, but it would take over 10 years to accumulate enough DAI earnings to cover the losses of Black Thursday at this rate. This is before considering operating expenses which are currently covered by the foundation.

I doubt Maker’s economics can be sustainable at the current scale of ~275M DAI. #ScaleOrDAI

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If you want to use DAI for free, it is to make DAI higher than the fixed exchange rate.

I have just created a signal request for an ETH-B vault that would start with a risk premium and possibly lower liquidation ratio. I encourage those who feel strongly about collecting risk premiums to check it out.

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I think the corollary to this idea is that debt ceilings should never remain capped out. A capped debt ceiling means that we are pricing the stability fee too low and that the market is happy to shift asset risk to Maker (or also that we simply have the ceiling set to low if we want more exposure to that asset). Ideally the supply/demand curves of the market should be constantly working and not hitting the parameter limits. I think this is most clear with wBTC where we have the stability fee set to low for our debt ceiling.

It is hard to reach these kinds of equilibriums in the current environment so I am not overly concerned about it atm, but I think it goes hand in hand with this topic.

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