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The shield

The shield is opt-in redemption protection. A shielded trove is guaranteed not to be redeemed against (except possibly during branch shutdown). You pay a higher borrow rate in return.

Why it exists​

In Liquity v1, the only way to avoid being redeemed against was to keep your ICR high enough to be far from the front of the list. That works, but it ties up extra collateral and doesn't protect you against a slow drift up the queue as others get redeemed.

The shield makes redemption protection an explicit, priced choice. If you'd rather pay a small premium than think about queue position, shield. If you want the cheapest possible borrow and you're comfortable being at risk of redemption when RD trades below par, stay base.

What it does​

When someone redeems, the protocol claims collateral from unshielded troves only, starting with the lowest-ICR one. Shielded troves are not touched at all in normal mode.

The only path in which a shielded trove can be redeemed against is branch shutdown, where the protocol switches to a discount-based pricing schedule that walks both books to clear the branch. See Shutdown redemption.

So in practice:

  • Normal mode: shielded troves are not redeemed against. Period.
  • Shutdown mode: shielded troves can be redeemed on the shutdown discount schedule.

What it costs​

If you shield, your trove pays a surcharge on top of the branch rate. That surcharge is the visible "shield premium." It funds an equal-and-opposite discount to every unshielded trove on the same branch, the two halves of the same mechanism. The size of both halves depends on how much of the branch is shielded:

  • If almost nothing is shielded, both the surcharge and the discount are tiny, protection is nearly free, and the unshielded book sees almost no benefit.
  • As the shielded share of the branch grows, both halves grow, shielded troves pay more, and unshielded troves' effective rate drops further below the branch rate. At the high end the unshielded rate can go as low as roughly −50% APR (the _V_MAX floor) before the curve flattens.

Mechanically: shielded troves pay more than the branch rate; unshielded troves pay less. The shielded book subsidizes the unshielded one.

The full formula and constants are in Interest model. The user-side takeaway: the more crowded the shield is, the more it costs to shield, and the more attractive it is to stay unshielded. Both sides of the shield-share adjustment are visible on the dashboard.

Toggling​

You can change your shield status at any time:

  • BorrowerOperations.shieldTrove(upperHint, lowerHint), move into the shielded book.
  • BorrowerOperations.unShieldTrove(upperHint, lowerHint), move back to the base book.
  • Or adjustTrove(..., _toggleShield: true, ...), flip in the same tx as a collateral/debt change.

Internally the protocol moves your trove's collateral from one pool to the other. From your perspective it's one position; nothing changes about ICR, debt, or interest accrued.

When to shield​

A few rules of thumb:

  • Shield if you want a hands-off position and don't want to monitor queue depth.
  • Shield if you're holding RD against the trove (the shield premium is small relative to the alternative of getting partially redeemed against and rebalancing).
  • Stay base if you're running an active borrowing strategy where being at the front of the queue isn't a problem (you'd close before redemption catches you).
  • Stay base if you want the cheapest rate the protocol offers and you understand redemption isn't a loss, it's a forced partial close at par.

What redemption actually does to you​

Important: getting redeemed against is not the same as being liquidated. Liquidation closes your trove and you lose the gas-comp reserve. Redemption is a forced partial close at par:

  • The redeemer hands the protocol some RD.
  • The protocol burns that RD against your trove's debt at par.
  • The protocol sends the redeemer collateral worth that RD (at the oracle price), minus the redemption fee.
  • Your trove ends up with less debt and less collateral, in proportions that keep your ICR roughly the same.

You lose some collateral exposure (the protocol picked the moment, not you), but you're not unwound. Many users are fine with that; some aren't. The shield exists for the second group.

Notes​

  • Shield status survives adjustments. Only an explicit toggle changes it.
  • A trove migrating between pools doesn't reset interest accrual, NICR ordering, or any other state.
  • During the bootstrap period (14 days post-deploy) redemption is disabled regardless, so shield is irrelevant. Open whichever you want.

Deep dive: Interest model, shield pricing. User view of redemption itself: Redemption.