> For the complete documentation index, see [llms.txt](https://docs.grace.loans/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.grace.loans/grace/collateral-fees.md).

# Collateral fees

In addition to interest payments, borrowers may also pay a variable yearly fee depending on which collaterals they have deposited. This fee is denominated in the each collateral token.

This mechanism allows for efficient pricing of collateral risk. For some highly liquid collaterals such as ETH, borrowers may not pay any collateral fees because the collateral risk of ETH is determined to be relatively low. However, for less liquid collaterals or collaterals that are priced by inferior price feeds, borrowers may be charged a higher collateral fee where their collateral balance decreases over time.

This fee is charged in exchange for the protocol’s exposure to the user’s collateral regardless of the user’s debt. The user may be charged additional interest based on the amount of tokens that they borrow.

All debt interest and collateral fees are accrued to the Reserve contract which backs each GTR token in circulation using its asset reserves.


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