# System Revenue & Fees

### S**ystem Revenue**

Sable Finance generates fee revenue from certain operations. Fees are captured by the SABLE token.

Sable Finance generates revenue from 2 sources: Borrowing Fee (issuance of new USDS tokens), and Redemption Fee.

### Borrowing Fee&#x20;

When you receive USDS from your Trove, a one-time borrowing fee is charged according to the amount you receive and is added to your debt. It's important to keep in mind that this borrowing fee is not a fixed rate, and is determined algorithmically. Typically, the minimum borrowing fee is 0.5% under normal circumstances. The borrowing fee will be 0% during Recover Mode.

Here's how we calculate the borrowing fee:

We start with a base rate, which is added to the Trove's debt. The borrowing fee is then determined by multiplying this rate by the amount of liquidity drawn by the borrower. The rate is kept within a range of 0.1% and 5%.

For example: Suppose the borrowing fee is 0.5%, and the borrower wants to receive 4,000 USDS in their wallet. After being charged a borrowing fee of 20 USDS, the borrower's debt will be 4,030 USDS (once the Liquidation Reserve and issuance fee have been added).

A one-time [**Liquidation Reserve Charge**](#liquidation-reserve-charge) will also be applied during the borrowing process. It will be fully refunded to you when you repay your debt.

Please also keep in mind that the price of USDS at the time of repayment would also be considered as a 'fee.' For example, suppose that when you're ready to repay your loan, USDS is trading at $1.02 on the market, and you need to purchase it. In that case, you'll incur a 2% 'fee.' To avoid this, you can have the borrowed funds readily available or wait for USDS to return to the peg.

### Redemption Fee

In normal operation, the redemption fee is calculated using the formula (`baseRate` + 0.1%) \* LSD drawn. The `baseRate` is a state variable in Sable Finance that is dynamically updated.

The `baseRate` increases with each redemption and decays based on the time that has passed since the last fee event. The fee event can be a redemption or issuance of USDS.

Upon each redemption:

* The `baseRate` is decayed based on the time that has passed since the last fee event.
* The `baseRate` is incremented by an amount proportional to the fraction of the total USDS supply that was redeemed.
* The redemption fee is then calculated using the formula (`baseRate` + 0.1%) \* LSD drawn.

Read more about Redemption [here](https://sable-finance.gitbook.io/docs/concept-overview/usds-borrowing/redemptions).

### Liquidation Reserve Charge

When you open a Trove and receive USDS, 10 USDS will be reserved to compensate the liquidator for gas costs in the event of liquidation. This fee is fully refundable and will be returned to you when you repay your debt and close the Trove. The reserve counts as debt and is taken into the calculation of a Trove's collateral ratio, which slightly increases the collateral requirements.

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