Introduction

What is the Stability Fee?

The Stability Fee is a variable-rate fee continuously added to a Vault owner’s generated DAI balance.

Stability Fees are a Risk Parameter designed to address the inherent risk in generating DAI against collateral in Maker Vaults. The current allowance is 2/3 rd of collateral used to generate DAI [2].

A portion of the Stability Fee is diverted toward sustaining the operation of the Maker Protocol, which includes the DSR, Risk Teams, and other costs associated with maintaining the protocol.

Stability Fee Rates

The Stability Fee for each Vault type changes as a result of the decisions of MKR token holders who govern the protocol.

These decisions are based on the recommendation of Risk Teams who perform risk assessments on Collateral used in the system.

The Risk Teams may update their proposed Stability Fee when something fundamental changes about the underlying asset or the system as a whole.

Where Stability Fees Go?

Stability Fees are collected inside the Maker Protocol’s internal balance sheet.

Once the maximum level of surplus is reached, the system automatically sends DAI to a Surplus Auction (Smart contract). During this auction, Keepers bid in MKR for DAI. DAI is released to the winning bidder while the MKR paid by the winner gets burned.

Sources:

1. MakerDao
2. CoinDesk Video

DAI Mint Amount

As I am not as well versed with MKR Dao as I should be I will be using someone else's quote (sourced below) as I do see the same results in the data as well (look below thread).

"After the crypto market correction on 19th June 2021, the demand for DAI has dropped, therefore, holders of MKR approved a proposal to reduce stability fee starting on 12th June 2021, this is to help boost DAI minting demand.

However, despite the fact that the stability cost was decreased on June 19, 2021, demand for DAI minting remained low. As a result, on July 19, 2021, the stability charge was further reduced to promote DAI minting, as low stability fees translate to low-interest rates for DAI borrowing.

This deduction in stability fee sees its effect starting September 2021 as DAI minted per day began to increase.

The number of DAI minted per day soared in October and early November, prompting Makers to raise the stability fee since the demand for DAI minting has recovered.

After the increase of stability fee on 10th November 2021 and 9th December 2021, we see that the DAI minted per day reduced sharply in the days that followed." Source: banbannard

What does the data tell us?

Daily / Monthly

Let's now look at the mint transactions, total amount minted ($) and average amount per transaction minted over time after accounting for these dates that increased/decreased the rate...

Date ranges {Current date - 365 days,..., Current date}

What we can see, on the daily, is that there was a significant demand (last year) which was followed by a sharp decrease after the market correction, then by a slowly increasing recovery trend then a decrease, with one massive spike towards the end (which could be users expecting the rate to drop and minting regardless of the date of the announcement being incorrect), followed by a sustained lower and lower trend until recently (May) with a massive increase that comes after the UST collapse on the 12th of May.

The same is also reflected in the monthly, where we can see more clearly the reduction in stability fees and how it has contributed to a recovery in the increase in minting demand post the market correction last summer.

On the overall amount daily we can see some massive spikes, which could coincide with big wallets minting a lot of DAI and with that we can also more clearly see that on the monthly there was a lot of DAI still being minted.

What the average mint amount $ can tell us is that in the months of Oct and Nov 2021 a lot of DAI minting that took place happened by big wallets (whales) that jumped at the opportunity of the reduction in the stability fee. Also what we can see is that this big spike in ~June last year, on the increased stability fee, could have been contributed directly to smaller wallets that somehow expected the stability fee to decrease.

Summary

Overall there's is a decreasing trend in the daily for demand for minting DAI although on the monthly the trend remains steady at around the same level. With the wipeout of UST from the markets and the markets being unsteady, reduced stability fees should (in theory) help MKR in increasing the demand for minting more DAI. With a lot of stables coming out of the market, in fear of regulation and also in an attempt for investors to de-risk themselves, the market cap of DAI also took a hit recently, but slowly seems to be recovering. What can be seen is that BUSD and primarily USDC seem to be the benefactors of this collapse.