Stability Fee Adjustments

Stability Fee Adjustments are a monetary policy tool used by protocols to manage the supply and demand of their stablecoins. A stability fee is essentially the interest rate paid by borrowers to maintain their debt positions.

By increasing the fee, the protocol makes borrowing more expensive, which can reduce the supply of the stablecoin and help bring its price back to the peg if it is trading below target. Conversely, decreasing the fee encourages borrowing, which can increase supply and lower the price if the stablecoin is trading above the peg.

These adjustments are a key lever for maintaining the stablecoin's value and are often determined through community governance. They serve as a decentralized version of central bank interest rate policy.