MakerDAO (MKR) token holders are yet again voting to decide whether they should increase DAI “stability fees” from 3.5% all the way up to 7.5% following three previous rate hikes for the stablecoin protocol in 2019.

Stability fees are charged when a user uses the MakerDAO platform to create DAI stablecoins by locking Ethereum (ETH) into the project’s CDP (Collateralised Debt Position) contracts. The amount of ETH needed to generate DAI depends on what level of collateralisation a user chooses when creating the contract, but at the time of creation, they must have at least 150% of the USD value of DAI created based on the current USD price of ETH.

If a user chooses to cash in their DAI and unlock the Ethereum from the CDP, they must then pay the stability fee, which is currently set at 3.5% a year.

Commenting on the new vote, the MakerDAO team has said that a larger increase could now be considered given the perceived differential before CDP users are incentivised to start aggressively closing CDPs.

The team said: “Depending on the potential short-term risks of a misaligned peg, a 4% increase could be warranted to swiftly close the gap.

“If the vote goes through for a 4% increase, it would be the largest one-time raise and runs the risk of overshooting our estimate.”

The MakerDAO project previously said that “a stability fee increase is warranted” because the “exchange price of Dai across several major exchanges, such as Coinbase Pro and Bitfinex, has been consistently hovering in the $0.975 to $0.985 range for 1–2 months”.

Vote now

The vote for MKR token holders is now live (until March 23rd) with three options available: to stay at 3.5% a year, to increase to 5.5%, or to increase to 7.5%.

According to the current data, it looks like the major hike up to 7.5% per year will go through as over 40,000 MKR (over 4% of the circulating supply) has already voted for this option, as opposed to around 1,000 MKR that has chosen either no or a smaller stability fee increase to 5.5%.

Even though the increase has not gone live yet, the team has already stated that if they see that the rate hike has an insufficient effect, “another proposal will be put forth for a subsequent increase”.

At present, around 2% of the current circulating supply of ETH is locked up in the MakerDAO smart contract platform. This currently represents $295 million worth of Ethereum to collateralise $95 million worth of USD-pegged loans supporting the DAI stablecoin.

DAI may not be the biggest crypto stablecoin, but I think it is by far the most transparent and auditable. Given the series of stability fee increases we have seen so far in 2019, only time will tell whether this innovative smart contract and stablecoin creation platform has what it takes to keep growing its governance model and holding its stable fiat peg.

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