# Management Fee

## **Management Fees for Interest-Bearing Collateral on Lore**

With the introduction of the latest iteration of the Cod3x CDP Module, Lore is able to take on multiple collateral types to mint loreUSD.

To avoid redemption scenarios hindering capital efficiency, especially with interest-bearing (IB) collateral (for example: ezETH), we have created a solution. This involves adding a variable collateral **management fee**, allowing the current system to grow safely and efficiently.

### **What is the Management Fee?**

The management fee is applied to the collateral deposited into a position, regardless of how much is borrowed.

For instance, if you deposit $1000 of IB assets and mint $500 worth of loreUSD, the management fee is calculated on the $1000 collateral.

Typically, this fee is set at around one-third of the IB rate of the collateral, but may increase if necessary.

### **Why charge a Management Fee?**

By taking on IB collateral in a CDP, users are often tempted to borrow stablecoins and leverage their IB asset exposure. This results in significant selling pressure on the stablecoin, which results in redemptions, and overall reduces the capital efficiency of the CDP.

Lore’s approach to mitigate this risk is to charge a small collateral management fee, typically only applied to IB collateral, and direct that yield to the stability pool. The goal is to make the looping strategy less profitable, as the cost of looping increases, and is reinforced by the opportunity cost of not staking in the stability pool.

While other mechanism designs are equally viable, this solution was the simplest and most secure iteration for the Cod3x CDP codebase, mitigating interest rate arbitrage profitability while enhancing scalability.

### **When is the fee applied?**

When you create a new loreUSD position, the management fee is clearly displayed in the position creation interface.

CDP fees are directed to loreUSD yield in the Stability Pool.

For detailed information on all collateral types and associated management fees, please refer to the [Collateral](/lore-cdp/loreusd-collateral.md) section in our documentation.

{% hint style="info" %}
If you have questions, please reach out to the Lore team in our official [Discord](https://discord.com/invite/Fe7Svu5rg3).
{% endhint %}


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