🤲Redeeming USBD

What exactly are redemptions?

Redemption is the process where users exchange their USBD tokens for BTC at face value, with 1 USBD worth exactly $1. This means for any amount x of USBD, you receive x dollars worth of BTC.

There are no restrictions on redemptions – users can redeem their USBD for BTC whenever they choose. However, redemptions are subject to a variable fee applied to the total amount redeemed.

For instance, if the current redemption fee is 0.75%, BTC is priced at $40,000, and you redeem 200 USBD, you would receive 0.00498 BTC (0.005 BTC minus the 0.00002 BTC redemption fee).

It's important to understand that your redemption contributes to the calculation of the system's coreRate and may affect the redemption fee, particularly for larger redemption amounts.

For comprehensive information about the redemption process, consult our technical documentation.

Is redeeming USBD the same as repaying my borrowed amount?

No, these are entirely separate mechanisms. To repay your borrowed amount, you simply need to adjust your Vault's debt and collateral parameters. Redemptions operate independently of your loan management actions.

How is the redemption fee determined?

Under normal operating conditions, the redemption fee follows this formula: (coreRate + 0.75%) * BTCwithdrawn

How is the coreRate calculated?

The redemption fee structure is built around the coreRate variable, which adjusts dynamically within the protocol. This rate increases with each redemption event and gradually decays toward 0 with a 24-hour half-life.

During each redemption:

• The coreRate decays based on time elapsed since the previous fee event

• The coreRate is then increased proportionally to the percentage of total USBD supply being redeemed

• The final redemption fee equals (coreRate + 0.75%) * BTCwithdrawn

The mathematical formula for the updated rate is: coreRateNew = coreRateOld + redeemedUSBD / (2.5 * totalUSBD)

Where coreRateOld represents the value immediately before this redemption, and coreRateNew is the recalculated value applied to the current redemption.

As a borrower, do I suffer financial loss if my position is redeemed against?

When your Vault is subject to redemption, you don't experience a net financial loss. However, redemptions will reduce your BTC exposure in the system. On the positive side, your Vault's collateralization ratio will improve following a redemption event.

How can I protect my position from redemptions?

The most effective strategy to avoid redemptions is maintaining a higher collateralization ratio compared to other Vaults in the system. Remember that the redemption mechanism targets the most vulnerable positions first – Vaults with the lowest collateralization ratios are prioritized during redemption events.