How stability fees and interest rates control stablecoin pegs
A stablecoin that does not stay at its peg is not stable. So how do protocols force a drifting price back to $1 without ordering anyone to buy or sell? The answer is financial pressure: they raise the cost of borrowing the stablecoin, demand drops, supply shrinks, and the peg firms up.
When the stablecoin trades above $1, the opposite happens. Borrowing is made cheaper, more people take loans, more stablecoins enter circulation, and the extra supply pushes the price back down. This mechanism is not the same across every protocol. Each system tweaks the dials differently.
MakerDAO and the Dai Savings Rate
MakerDAO uses two main levers: the Stability Fee and the Dai Savings Rate (DSR). Borrowers of Dai pay the Stability Fee on their collateralised debt positions. If Dai trades below $1, that fee rises. Holding open a position becomes more expensive. Some borrowers close their positions and repay Dai; the supply of Dai contracts and the peg is pulled upward.
When Dai trades above $1, the Stability Fee can be lowered and the DSR increased. The DSR is interest paid to anyone who locks Dai in the protocol. A higher DSR encourages holding and removes Dai from circulation. Counterintuitively, when Dai is already expensive, the protocol can increase demand to hold. But this only works if the premium is modest. The real expansion lever is lowering the Stability Fee, because cheaper borrowing creates new Dai. The DSR is unique among major stablecoins: it is a direct payout to holders. Most protocols do not offer it.
crvUSD and the PegKeeper
Curve’s crvUSD uses a different tool: the PegKeeper. It is not a loan against volatile collateral. It is an algorithmic controller that adjusts the supply of crvUSD automatically based on the price on Curve pools.
When crvUSD trades below $1, the PegKeeper mints crvUSD and sells it into the pool. Wait - does that not make things worse? No. The minted crvUSD is not thrown into circulation freely; it is used to buy the undervalued stablecoin from the pool. The purchase drains crvUSD supply and removes it, and the pool price recovers.
When crvUSD trades above $1, the PegKeeper does the reverse: it withdraws crvUSD from the pool and burns it. Supply falls and the premium is erased. This is not an interest rate. It is a direct supply adjustment. Borrowers still pay interest, but the rate is less central to peg control than the Keepers are. The interest rate on crvUSD is set by the LLAMA lending market algorithm and fluctuates with utilisation - how much of the pool is borrowed. High utilisation means high rates. This matters for traders who borrow crvUSD to buy more collateral and repeat, because the effective interest rate can compound quickly.
GHO and the Borrow Rate Floor
GHO is Aave’s native stablecoin. Its peg control is simpler: the protocol sets a single borrow rate, a fixed percentage changed by governance. It is not dynamic by default.
If GHO loses its peg upward, the rate can be lowered. If it falls below $1, the rate rises. The mechanism relies entirely on users responding to that cost signal. There is no PegKeeper, no DSR. The only pressure is on borrowers to either repay or stop borrowing. In practice, arbitrageurs also help - they buy GHO below $1 and redeem it at face value, pushing the price back - but the rate decision from governance is the primary control. It is slower than automated systems.
Frax and the Algorithmic Half
Frax is a hybrid. Part of its supply is backed by collateral (USDC); part is algorithmic, created from nothing. The interest rate on borrowing Frax is set by the Frax Monetary Policy contract, which uses a target utilisation rate.
When Frax trades above $1, the borrow rate is lowered, people borrow more, and the algorithmic portion of supply expands. Below $1, the rate rises and borrowing slows. The Frax Price Index (FPI) also adjusts the rate paid on staked FRAX (sFRAX), varying with market conditions. What sets Frax apart is that it can also use its AMO (Algorithmic Market Operations) to buy or sell Frax directly. The AMO is a collection of smart contracts that interact with secondary markets; it acts as a market maker. This is closer to crvUSD’s PegKeeper in spirit, but it is decentralised and programmable.
Comparing borrow rates for traders who multiply positions
A user deposits stablecoin as collateral, borrows more of the same stablecoin, deposits that borrowed amount, and borrows again. The goal is to multiply yield or increase a position size. The cost is the borrow rate, and across protocols those rates vary significantly.
On MakerDAO, the Stability Fee is fixed by governance and currently sits at a single rate across all collateral types. It is predictable but not market-driven. On crvUSD, the borrow rate changes with utilisation; if the pool is nearly fully lent out, rates spike. A position that seemed cheap in the morning can become expensive by the afternoon. On Aave, GHO’s rate is governance-set and does not move without a vote. Stability can be an advantage for planning, but it means the rate might lag market conditions. On Frax, the rate is algorithmic but targets a utilisation range and adjusts gradually. A user comparing these must watch the rate histories and the current utilisation. The cheapest rate today may not be the cheapest next week. The fastest way to get liquidated is to assume a static cost.
What this means for babykitty
BabyKitty is a token traded on PancakeSwap on the Binance Smart Chain. As of August 31, 2026, its price was $0.00000000000000000003226. Its market cap was $127,638. Its 24-hour trading volume was $56.06 based on 7 transactions. It has no description on CoinGecko, no whitepaper, no GitHub, and no listings beyond the PancakeSwap pair.
BabyKitty is not a stablecoin. It has no stability fee, no interest rate tool, no PegKeeper. There is no protocol controlling its peg because it does not have one. If someone ever builds a stablecoin borrowing system around BabyKitty, they would need to decide which of the above mechanisms to copy. Until that day, the comparison is academic. The token exists as a small liquidity pool with a 24-hour transaction count you can count on two hands.
Not financial advice. babykitty.club publishes market data and general information about BabyKitty. Crypto assets are volatile and you can lose everything you put in. Nothing here is a recommendation to buy, sell or hold, and we make no price predictions.
Prices are sourced from third parties and may be delayed or wrong. Verify anything you intend to act on against a primary source.