MakerDAO (MKR) token holders are voting to decide whether they should increase DAI “stability fees” from 1.5% to 3.5% following two failed 0.5% hikes last month.

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 today stands at 1.5% a year.

At present, most users of the platform have chosen to collateralise the CDPs at around 200% of the value of DAI in the contract – as the platform will auto-liquidate ETH into the market to hold the peg of the stablecoin if the price of ETH locked in the contract falls below the 150% level.

The MakerDAO team “strongly suggests 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 7th, 4pm UTC) with two options available: to either stay at 1.5% a year or to increase to 3.5%. The latest proposed hike is also a 4x increase compared to the last two votes in February, where token holders were asked to vote for a 0.5% increase in the stability fee.

These changes were said to be “negligible”, with the project stating that “neither the target Stability Fee nor the [last] incremental change was appropriate” to impact the stability of the DAI token to hold its $1 peg.

Who is winning the vote?

According to the current data, it looks like the 2% hike will go through.

The 42,000 MKR tokens represent 4.2% of the one million circulating supply of MKR tokens, with the two previous votes having seen below 10% of token holders cast a vote.

What does the project think will happen next?

According to a recent blog post, the project hopes that the stability fee increase will “incentivise CDP closures (thereby reducing outstanding DAI supply“.

If we again see the $1 peg break and the creation of new CDP contracts fail to slow down, we may see another vote in the “next seven days” to increase the annual stability fee again all the way up to 5.5% a year.

At present, around 2% of the current circulating supply of ETH is locked up in the MakerDAO smart contract platform. This currently represents $287 million worth of Ethereum to collateralise $92 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. 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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