When you open a Vault and borrow Dai, you will begin to accrue a variable rate fee on your outstanding Dai, and you will need to pay back that fee and the borrowed Dai when closing your Vault.. This variable rate fee is called the Stability Fee and is applied as a compounding percentage on your outstanding Dai debt. It works to offset the risk of borrowing against collateral in Maker Vaults.
Each collateral type has its own rate depending on the risk inherent to each collateral and prevailing market conditions. Rates are subject to change by Maker Governance based on proposals from the governance elected risk teams to help keep the system functioning properly.
While the rates can be changed at any time, once they are set, they remain the same until Maker Governance changes them again so they are easy to understand and track. It is recommended that Vault Owners check the rates frequently to keep their Vaults reasonably collateralized.
How is it calculated?
The Stability Fee is continuously compounding interest at a growth rate of x% per second. The Stability Fee is continuously added to your total outstanding debt. This means that you won’t be tracking your debt and your accrued interest separately, you only need to track one number: your total outstanding debt.
For example if the Stability Fee is set to 2%, it will accumulate at 1.0000000006279371924910298109948% per second. At the end of year one, the user will owe exactly 2% on the principal.
Assuming the user borrows 100 Dai and the rate doesn’t change, at the end of year one they would have a debt of 102.00 Dai. At the end of year two, they would have a debt of 104.04 Dai.
When is it charged
The Stability Fee is added to your total outstanding debt every time an incentivised party calls a public function (drip) in one of the Maker Contracts. For the Vault Owner this makes no difference and they can expect to have a total debt of the initial borrowed amount plus the stability fee. To understand this further you can read about the Rates Module in Maker Documentation portal.