Stability Fee

The 'Silver Bullet' for sustainable and lasting stability

What is the Stability Fee?

The Stability Fee lies at the heart of the fee structure and incentive model within the protocol. It is this Stability Fee that creates the interconnectedness within the Protocol. The Stability Fee is designed to respond to market dynamics ensuring and supporting the stability of the protocol under all circumstances and providing the Protocol with its tensile strength.

Good to know: The Stability Fee can be positive, zero or negative. In case of a positive Stability Fee, the collected DCM from the wallets will be added to the liquidity in the Stability Pool. When the Stability Fee is negative the DCM will be distributed from the liquidity in the Stability Pool to the owners of DCM.

The Stability Fee is the fee DCM & LPD owners pay to each other in support of the stability of the protocol, hence it is interest for those token holders who paid it but yield to those who receive it. It is this fee that ensures its stability in every market circumstance.

How does it work?

The Stability Fee is designed in relation to the net circulating supply of DCM and the liquidity in the Stability Pool. The Stability Fee is therefore paid by DCM to LPD owners or vice versa. The two main influences on the fee are the Market Value of DCM and the (target) size of the Stability Pool.

STABILITY YIELD

The Stability Fee will vary depending on market dynamics and the size of the stability pool. The Stability Yield indicates the yield in the Stability Pool that follows the actual Stability Fee that will be added to the Stability Pool in a certain timeframe.

Since the impact of the Stability Fee depends on market dynamics such as the Stability Pool size, the Stability Yield determines the desired impact which translates into the actual Stability Fee. Hence the Stability Yield (Stability Yield Delta) will be a constant whereas the Stability Fee will change depending on the open market supply.

The Stability Fee consist of the following components that together make up the total fee.

DCM LIQUIDITY

The Liquidity in the Stability Pool is the result of the following influences that can have an impact on the lpRATE and the value of LPD:

  • Providing and withdrawing liquidity in DCM

    • LPD supply changes

  • Divergence change

    • Market value changes in DCM whilst there is DUCA present in the Stability Pool

    • DUCA Burn events. DUCA is received against DCM Market Value but burnt against the Par Value which increases the liquidity

  • Fees, obligations and rewards

    • Operating Fee

    • Treasury Fee

    • Stake Escrow Reserves

    • Exit Fee

  • Stability Fee

In general, we can say that the liquidity of the stability pool is fully dynamic and responds to market dynamics, alongside the demands from the protocol which are beyond our control. Whether this results in an attractive investment opportunity for LPD or not can't be predicted or steered.

The stability fee term is what the Protocol can control and use to navigate the attractiveness of LPD and align with the required liquidity in the stability pool. To keep the pool at a desired level, the lpRATE which determines the Yield for LPD needs to be attractive enough to bring investors to the pool and keep them there. Whilst not being too attractive, to avoid overshooting.

Maintaining the pool size at the desired level can then be reached by increasing the Stability Fee when the pool size is too small, and by decreasing it when it is too large. When the pool size deviates further from the desired value, increasing or decreasing the fee faster will also bring the pool back to the desired size faster, as it will have an impact both on the attractiveness for LPD and the resulting yield itself.

The rate at which the Stability Yield changes, called the Stability Yield Delta, should not be too rigorous though, to avoid overshooting. This is resolved by using the Sigmoid function for setting the right Stability Yield Delta.

SEIGNIORAGE

To stabilise the Protocol, support DUCA and make DCM deflationary a Seigniorage will apply to the Stability Fee. Whenever the Stability Fee is applied, 50% of the fee will be taken and added to the Treasury Fund. This effectively reduces the circulating supply on the open market.

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