Redemption

What are redemptions?

Redemption is the process of exchanging $AXUSD for collateral at face value, with the assumption that 1 $AXUSD is equivalent to $1. Users can redeem their $AXUSD for collateral at any time without restrictions, although a redemption fee may apply. For instance, if the current redemption fee is 1% and the price of collateral is $500, redeeming 100 $AXUSD would yield 0.198 collateral (after deducting the redemption fee of 0.002 collateral).

What happens if my vault is redeemed against?

When a vault is redeemed against, collateral is allocated from the vault(s) with the lowest collateral ratio, even if it exceeds 110%. If your vault has the lowest ratio at the time of redemption, you will surrender some collateral, but your debt will decrease proportionally. The USD value by which your collateral decreases corresponds to the nominal $AXUSD amount by which your vault’s debt is reduced. Redemptions improve the collateral ratio of affected vaults, reducing risk.

Is redemption same as paying back debt?

No, redemptions and debt repayment are distinct mechanisms. Repaying debt involves adjusting the vault's debt and collateral, whereas redemption exchanges $AXUSD for collateral.

How is the redemption fee calculated?

Under normal conditions, the redemption fee is determined by the formula (baseRate + 0.25%) Collateraldrawn. Users who redeem another user's vault are charged a redemption fee and inherit the total debt of the redeemed vault, including interest.

How is the baseRate calculated?

Redemption fees are based on the baseRate state variable, which is dynamically updated. The baseRate increases with each redemption and decays over time since the last fee event (redemption or $AXUSD issuance). Upon each redemption, the baseRate is decayed based on time passed and incremented by an amount proportional to the fraction of the total $AXUSD supply redeemed.

Do I lose money if I'm redeemed against as a borrower?

You do not incur a net loss if your vault is redeemed against, but you will lose some collateral exposure. However, your vault's collateral ratio improves after redemption.

How can I avoid being redeemed against?

Maintaining a high collateral ratio relative to other vaults in the system is the best way to avoid redemption. The riskiest vaults, i.e., those with the lowest collateralization, are first in line during redemption.