There is no fee for opening a new collateralized debt position (CDP). Fixed fees for issuing loans are un-necessary, reduce usability, and may significantly limit short-term loan demand. Unit Protocol provides a zero issuance debt fee, as well as a zero close debt fee.

There are however two fees that are tied to loan transactions you complete. Those are stability fee and liquidity fee.

Stability Fee

This acts as a risk parameter, it indicates the inherent risk in creating $USDP using different collaterals. During the last update, the stability fee was set to 1.9% for all collateral.

This fee represents the cost of $USDP debt per year. It capitalizes during every action, which reduces debt/collateral ratio like withdrawing collateral and borrowing more $USDP. The Stability Fee is continuously compounding interest and totals the given percentage at the end of the year. For example, if a user borrow $100 worth of $USDP at 2% stability fee, they will have to pay back only 102 dollars at the end of the year.

Liquidation Fee

This is a fee that will be calculated as a percentage from the loan and is paid by the borrower if liquidation occurs. This fee is added to the vaults total outstanding generated $USDP, which will be deducted from collateral if liquidation ever occurs. The proceeds from the liquidation fee is sent to the governance pool address for fee distribution.

The penalty is necessary to prevent Auction Grinding Attacks, which includes exploiting the process by purposefully creating high risk collateralized debt position and intentionally allow the position to go unsafe, causing the collateral to go to the liquidation auction.

$DUCK Burns

Before the Duck Staking, all the collected fees were used to buyout DUCK from the open market and burn it.