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# System prepended metadata

title: Risk Parameters

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---
title: Risk Parameters
order: 3
hideLanguageSelector: true
keywords: "format, event, events, meetup, meetups, guide, agenda"
description: "The risk paramenters associated with the addition of new collateral to the Maker Protocol."
---

# Risk Parameters

Each type of collateral in DCS is associated with its own set of risk parameters. 

Risk parameters may be influenced by both the financial and technical characteristics of the collateral token. 

The parameters include:

<List>

- Stability fee

  - When Dai is generated by a Collateralized Debt Position (CDP), a stability fee accrues continuously. When the Dai is returned, the accrued stability fee must be paid on top. A share of the fee goes to pay the Dai Savings Rate to Dai holders. Another share of the fee goes to buy and burn MKR tokens to compensate MKR token holders for committing to backstop the DCS in case of a black swan event.

- Liquidation ratio

  - The liquidation ratio is the minimum ratio between the value of the collateral in the CDP and the value of Dai drawn from the CDP. For instance, if the ratio is 150%, the CDP will be liquidated if there is 100 Dai drawn and the value of the collateral drops below $150.

- Liquidation penalty

  - In the event of CDP liquidation, a penalty is paid by the CDP owner used to buy and burn MKR tokens.

- Debt ceiling

  - A system wide limit on the amount of Dai that can be drawn against a specific type of collateral.

</List>

These risk parameters are calculated by a risk team using information provided by the proposer of the collateral. 

As the MakerDAO Governance process gradually is decentralized, the aim is to have a multitude of independent risk teams, that can calculate risk parameters and ask the MKR governors (MKR token holders) to approve the addition of collateral to the system.