Redemptions

What are Redemptions in Solido?

Redemptions in Solido give $CASH holders the ability to exchange their $CASH for an equivalent amount of collateral, based on its USD value. This process helps ensure the stability of $CASH, maintaining its value close to the desired redemption rate.

How Does Redemption Work?

To fulfill a redemption request, Troves are redeemed starting from those with the highest collateralization ratio (LTV). In a redemption sequence, Troves are fully redeemed from the first n-1 Troves and partially redeemed from the last Trove.

• Partial redemption

Most redemption transactions will include a partial redemption since the amount redeemed is unlikely to perfectly match the total debt of a series of Troves.

The partially redeemed Troves are re-inserted into the sorted list of Troves and remain active, but with reduced collateral and debt.

• Full redemption

A Trove is defined as “fully redeemed from” when the redemption has caused its debt to be fully absorbed. Then, its Liquidation Reserve is canceled (and returned to the borrower), and the debt is zeroed.

Is redemption the same as paying back my debt?

No, redemptions are a completely separate mechanism. All one has to do to pay back their debt is adjust their Trove's debt and collateral.

As a borrower, do I lose money if I'm redeemed against?

If your Trove is redeemed against, you do not incur a net loss. However, you will lose some of your Collateral exposure. Your Troves collateral ratio will also improve after a redemption. You gain redemption gratuity for serving the protocol's redemption.

How can I avoid being redeemed?

Maintaining a higher collateral ratio than other borrowers makes your Trove less likely to be targeted in redemptions. However, redemption isn't harmful—it reduces your debt, and you may earn a gratuity.

How do redemptions create a price floor?

Economically, the redemption mechanism creates a hard price floor for $CASH, ensuring that the market price stays at or near to $1 value of collateral.

Can the $CASH stablecoin become unstable?

Yes. The outside market may trade the stablecoin for less than one USD. However, the redemption function decreases the likelihood, because anyone can redeem 1 $CASH for $1 of any cryptocurrency as collateral value at any time.

How does the protocol know how much $CASH is to mint from deposited collateral?

The protocol determines the amount of $CASH to mint based on the USD value of the deposited collateral. It references the real-time price feed for the specific collateral type and mints the corresponding amount of $CASH, ensuring that the loan meets the minimum collateralization requirements set by the protocol. This process applies to all supported collateral assets within Solido’s multi-collateral system.

What is redemption gratuity?

Redemption gratuity is a protocol-level reward given to borrowers who are redeemed against. It serves as compensation for passively supporting the protocol’s stability by allowing redemptions to occur. This gratuity may be distributed as protocol tokens or as a share of the redemption fee.

Why does the protocol offer a reward when my Trove is redeemed against?

The protocol compensates borrowers whose Troves are fairly used in redemptions with a reward known as redemption gratuity. Since redemptions strengthen the system, the protocol incentivizes participants who contribute to this process.

Where can I see the redemption gratuity I received?

The system automatically distributes the redemption gratuity and transfers it to the user's wallet.

What is the source of the redemption gratuity?

The protocol sources the redemption gratuity from the redemption fee it collects during the redemption process. When a user initiates a redemption, a fee is applied, and a portion of that fee is allocated as a gratuity to the borrower whose position is being redeemed. This design ensures that the borrower is fairly incentivized for supporting the system's stability, without impacting the collateral amount received by the redeemer.