Redemption

What is Redemption?

A redemption is the process of exchanging RUSD for CKB/BTC at face value, as 1 RUSD is exactly worth 1 USD in Stable++.

Users can redeem their RUSD for CKB/BTC at any time without limitations. However, a redemption fee will be charged on redemption. Note that the redeemed amount is taken into account for calculating the fee rate and have an impact on the redemption fee.

Mechanism

When a redemption occurs, it means a user is exchanging RUSD for CKB/BTC. The RUSD provided by the redeemer goes into the vaults with the lowest Collateral Ratio, as CKB/BTC collateral from these vaults is then transferred to the redeemer.

Although the vault owner faces a reduction in their collateral, there is no actual net loss for them, as the RUSD added to the vault increases the Collateral Ratio, vault owner’s debt is also deducted accordingly.

In essence, while the vault owner experiences a change in the composition of their vault, the overall value remains balanced.

Why do I want to redeem from Stable++?

When the price of RUSD falls below USD, it is profitable to buy RUSD from DEXs and then redeem it for USD from Stable++. This process also has the positive side effect of increasing the price of RUSD, helping it return to parity with USD.

Do I have to pay fee as a redeemer?

Yes, there is a redemption fee depend on the redemption volumes, and the frequency of how often the redemptions take place recently.

How is the fee calculated?

redemptionFee = redeemedAmount * (baseRate + 0.5%) 

How is the base rate calculated?

newBaseRate = RedeemedAmount / (totalDebtInPool * 2) + oldBaseRate

The base Rate increases with each redemption, and decays to 0 over time with a 12 hour half-life. Fee rate cannot become smaller than 0.5% , which is added to base rate, protecting the redemption facility from being misused by arbitrageurs front-running the price feed. The redemption fee rate is also capped at 10%. The base rate will also be updated to old base rate for the next redemption.

As a result, fee rate increase upon every redemption and decays over time as long as no redemptions occur. The intent is to deter large redemptions with higher fees.

How can I avoid being redeemed against?

Though redemptions do not cause you any net loss, it's important to keep in mind that the best way to avoid being redeemed against is by maintaining a high Collateral Ratio relative to the rest of the vaults in the system. This proactive approach not only safeguards your position but also enhances the overall stability of the system.