Fee Model

What are the interest fees?

In Quill, interest fees are dynamic and based on a system where borrowers can set their own interest rates, offering them greater flexibility compared to Liquity V1. Interest rates range from 6% to 350%, depending on market conditions and the user's preferences. This flexibility allows borrowers to manage their debt costs based on market dynamics and liquidity needs.

Quill charges interest on loans over time, making it more appealing for short-term borrowing. Interest is calculated as simple, non-compounding interest, accruing linearly based on the debt amount and duration. Borrowers pay these fees in $USDQ, the stablecoin issued by the protocol​.

This approach ensures that borrowers can better control their borrowing costs and allows Quill to maintain the stability of its stablecoin through these market-driven adjustment

What are Redemption Fees and how do they work?

Redemption fees are a dynamic mechanism that adjusts based on redemption activity within the protocol. Here's how they work:

• Fee Calculation: When you redeem $USDQ for ETH, a percentage fee is charged on the amount being redeemed. This fee scales with the size of the redemption and the frequency of redemptions within the system.

• Dynamic Adjustment: The redemption fee increases as more redemptions occur. This means that during times of heavy redemption activity (when many users redeem $USDQ), the fee becomes higher, discouraging excessive redemptions and helping to stabilize the protocol.

• Peg Maintenance: Redemption fees play a critical role in maintaining the peg of $USDQ to $1. As redemptions increase, which often happens when $USDQ trades below $1, the fee rises to limit new redemptions, preventing further downward pressure on the peg.

• Automated System: The adjustment of redemption fees is automatic and decentralized, meaning it does not require governance votes or manual intervention. This ensures the protocol remains agile in maintaining stability.

This system helps balance user redemptions while protecting the protocol from instability caused by large-scale withdrawals.

What is a Base Rate and how does it work?

Base Rate refers to a variable interest rate that affects the fees users pay when they redeem stablecoins ($USDQ) for collateral. It dynamically adjusts based on the recent redemption activity within the protocol.

Here’s how it works:

• Redemption Activity: When users redeem their stablecoins, the base rate increases. The more frequent the redemptions, the higher the base rate becomes. This makes redemptions more expensive over time, discouraging excessive redemptions and helping maintain the stablecoin’s peg.

• Fee Calculation: The base rate directly impacts the redemption fee. If redemptions are occurring frequently (signaling potential instability in the stablecoin's peg), the redemption fee rises, making future redemptions costlier.

• Peg Stability: By adjusting the base rate, the protocol ensures that its stablecoin ($USDQ) maintains its peg to $1, discouraging destabilizing behaviours like mass redemptions during market volatility.

The Base Rate is an automated mechanism and part of the protocol's self-stabilizing features, ensuring long-term system sustainability.