Demurrage

Demurrage in crypto refers to a mechanism designed to discourage hoarding and incentivize spending or circulating digital assets by imposing a fee on unused balances over time. It's primarily implemented in stablecoins or cryptocurrencies aiming for price stability.

Example:

Let's consider a hypothetical stablecoin, "StableUSD" (SUSD), which employs demurrage. SUSD holders are charged a small percentage fee on their balances if they remain idle for a certain period.

Case:

Alice holds 100 SUSD in her wallet. The demurrage rate is set at 0.5% per month. If Alice doesn't transact with her SUSD for a month, she'll be charged 0.5 SUSD as demurrage. Her balance will decrease to 99.5 SUSD.

Rationale:

Demurrage discourages users from holding onto large amounts of a stablecoin without using it, as they would incur fees over time. This mechanism aims to promote circulation and utilization of the stablecoin, contributing to its stability and overall ecosystem health.