# Base Rate

### **Borrowing / Repayment Fees**

* (Normal) Borrowing Fees: borrowing\_amount \* (BASE\_RATE + 0.5%) (up to a max of 5%) 
* (Recovery Mode) borrowing Fees: 0%
* Repayment Fees: 0%

For example, when the borrowing fee stands at 1.5% (base rate = 1%), and the borrower wants to borrow 1,000 $USC. The borrower will incur a debt of 1,000 \* (1+1.5%) + 20 = 1,035 $USC after the Borrowing fee and liquidation reserve is added. 

### **Redemption Fees**

* Redemption Fees: redemption\_amount \* (BASE\_RATE + 0.5%) (up to a max of 5%)

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The Base Rate is the key variable that acts as a soft peg mechanism by encouraging or discouraging the borrowing of $USC. <br>

This Base Rate starts off at 0 but increases with every redemption event:

* Base Rate (t) = Base Rate(t-1) + a \* ($$USC redeemed/$$USC supply), a = 0.5<br>

If redemption demand is high, it likely indicates a high supply of $USC, and that it’s trading below peg. An increase in the Base Rate makes it expensive to borrow more $USC, effectively curbing the supply of new loans. This decrease in $USC supply over time gradually pushes the price back up to peg.<br>

The Base Rate has a decay factor from the time since the last fee event, be it the last borrowing or redemption of $USC. With the current set up, the half life of the Base Rate (time it takes for Base Rate to halve from last event) is half a day:

* Base Rate (t) = Base Rate(last fee event) \* b^(block since last fee event / blocks produced in ½ day), b = 0.5

No fee events likely indicate that fees are too high for both redemptions or borrowing. This decay helps regulate fees when it becomes too exorbitant for market conditions.

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Notes:

* The redemption fee is charged in the respective collateral currency (e.g. cdcETH).&#x20;
* The borrowing and redemption fee floor is set at 0.5% in Normal Mode. In Recovery Mode, the borrowing fee will be 0%. (more details on Recovery Mode can be found here)
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