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Furthermore, SE damage only applies to fire, acid and lightning whereas potency also applies to cryo, increasing the length of freeze time.
Every half second, fire, acid, and electric effects will tick down and deal damage. Each time they tick down, the target will lose 1/5th of their stacks and will lose all of them if it's below a certain threshold. The base damage per stack is 3 for fire and 2 for acid and electric. To make up for the lower base damage, acid boosts all direct damage to the target by 1% per stack and electricity boosts crit chance by .5% per stack.
The base damage of DOT (damage over time) is modified by upgrades to status effect damage and general damage upgrades. Critically (and confusingly), weapon specific and tag based upgrades don't effect DOT. Also, DOT can't crit.
Thus, status effect upgrades don't effect how many damage ticks take place, only how much damage each tick deals.
Potency on cold effects how much slowing affect is applied and how quickly enemies will freeze.
It's a bit of a confusing system. Hopefully, the devs will eventually add more of an in-game explanation of these systems.