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  1. Protocol
  2. Fees and Penalties

Servicing Fee

Borrowers are charged a loan servicing fee, typically ranging from 0.30%-0.50% per annum applied to the purchase price received in auction.

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Last updated 1 year ago

The servicing fee is a fee earned by the protocol for processing loans, maintaining records, and monitoring collateral. The fee is quoted as an annualized rate applied to and deducted from any loan proceeds obtained as a result of a successful bid by a borrower.

While the servicing fee is nominally charged to the borrower, borrowers will take this into account when placing bids such that the economic burden of the fee will fall on both borrowers and lenders, (see on the economics of tax incidence at Khan Academy).

Fixed fees have been shown to be economically efficient in contrast to bid-ask spread fees, which can lead to strategic behavior ().

Servicing Fee Example
  • Servicing Fee = 0.5% per annum

  • Term Repo Term = 4 weeks (28 days)

  • Borrower Purchase Price (amount accepted in auction) = 100,000 USDC

  • All fees calculated on an actual / 360 basis

  • Payable up-front by the borrower (no fees to lenders)

Servicing Fee = 38.88... USDC = 100,000 USDC * 0.005 * 28 / 360

tutorial
Jantshcgi et al, 2022