💸Redemption
The face-value exchange that anchors USDFC's peg
Redemption is the protocol's mechanism for exchanging 1 USDFC for $1 worth of FIL. Any holder can invoke it (as long as the system's total collateral ratio is at or above 110%), and the FIL comes from the collateral of the lowest-ratio Troves. That standing mechanism is what supports the price from below: whenever USDFC trades far enough below $1 that the discount exceeds the redemption fee and transaction costs, redeeming becomes profitable, and the resulting arbitrage pushes the price back toward $1.
What redemption gives holders
Arbitrage — buy USDFC below $1, redeem it for $1 of FIL, keep the difference
On-demand exit — convert USDFC to FIL at the oracle price even when DEX liquidity is thin (subject to the conditions below)
How it works
A holder submits USDFC for redemption.
The protocol pairs it against the Trove with the lowest collateral ratio (of those at 110% or above — Troves below that are left for liquidation): the Trove's debt is reduced by the redeemed amount and an equal USD value of its FIL is released.
If one Trove isn't enough, the redemption continues into the next-lowest, until fulfilled.
The redeemer receives the FIL minus the redemption fee; the fee itself is taken in FIL.
For the affected Trove owner this is a forced swap: debt falls by exactly the USD value of the collateral taken, valued at the oracle price with 1 USDFC counted as $1, so net position value is unchanged on those terms — but FIL exposure is gone from that slice, and if FIL later rises, that upside was surrendered. Keeping a higher ratio than the crowd moves you further back in the queue — it doesn't exempt you; the app's Debt in front figure shows how much debt stands between you and it (details).
Redemption is not repayment. Redemption targets Troves in collateral-ratio order and doesn't let you choose which one — it is not a way to pay down your own debt. To reduce your own debt, repay via Update Trove, which has no fee at all.
A redemption cannot leave a Trove's net debt below the 200 USDFC minimum. If the next partial redemption would do so, the redemption stops there: whatever was already processed goes through, and the unprocessed USDFC stays in the redeemer's wallet. A Trove that is redeemed in full is closed — its owner's remaining collateral is moved to the CollSurplusPool and can be claimed from the app.
Redemption Fee
The fee is charged as a share of the FIL drawn from Troves and deducted from what you receive — in USD terms, (Base Rate + 0.5%) of the redeemed amount.
0.5% is the floor. The Base Rate rises with each redemption — by 0.5 × (redeemed amount / total supply) — and decays with a 12-hour half-life. The increase from your own redemption is applied before your fee is calculated, so large redemptions pay a slightly higher rate than the one displayed beforehand.
Unlike the borrowing fee, the redemption fee is not capped at 5% (the technical ceiling is 100%, at which point the redemption reverts), so a wave of redemptions makes further redemptions progressively more expensive.
Redemptions are unavailable while the system's total collateral ratio is below 110%.
This dynamic fee is deliberate: it lets ordinary peg-restoring arbitrage through cheaply, but makes it prohibitively expensive to strip large amounts of collateral out of the system in a short window.
The peg, from both sides
Below $1: redemption arbitrage burns USDFC supply and pushes the price up (as long as the discount exceeds the current fee).
Above $1: minting becomes the arbitrage — borrow at $1 of value per USDFC, sell at the premium — expanding supply and pushing the price down. The 110% collateral requirement is why the ceiling is softer than the floor.
Worked example: USDFC trades at $0.98, the Base Rate is 1.0%, and total supply is 1,000,000 USDFC. You buy 1,000 USDFC for $980 and redeem. Your redemption first raises the Base Rate by 0.5 × 1,000 / 1,000,000 = 0.05 percentage points, to 1.05%, so your fee is 1.55% — you receive $984.50 of FIL. Profit ≈ $4.50 before gas, and the next arbitrageur starts from the higher rate.
Where next
Redeeming USDFC — the hands-on guide
Mint & Borrow — the Base Rate mechanics shared by both fees
Monitoring Your Position — how Trove owners track redemption risk
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