Redemption

Any RD holder can exchange RD for collateral at $1 of value per RD (par, normally exactly $1.00), less a small fee. This is the mechanism that puts a price floor under RD.

This page describes normal-mode redemption. When a branch or the whole system is shut down, redemption follows a different mechanism and pricing, see Shutdown redemption.

Exchange RD for Collateral

Redemption is a single atomic swap with the protocol: you give RD and receive one basket of collateral — a slice from every active branch in the same transaction, each RD worth $1 of value at par, minus a small fee.

You give the protocol some RD. It burns that RD against the debt of one or more borrowers, gives you their collateral at the oracle price, and charges you a small fee. The borrowers end up with less debt and less collateral but a roughly unchanged ICR.

If you're an arbitrageur and RD is trading below par on a DEX, you buy cheap RD, redeem at par, sell the collateral, and pocket the spread, pushing RD's market price back up. That's the floor.

What "at par" means

For every 1 RD you redeem, you receive collateral worth 1 × par USD at the current oracle price, minus the redemption fee. Examples (par = $1.00, ETH = $3,000):

• Redeem 3,000 RD with a 0.5% fee → you get (3000 × $1.00) / $3,000 = 1.00 ETH of value at par, then pay 0.5% in collateral fee, ending up with 0.995 ETH.
• Redeem 3,000 RD with a 2.5% fee → you get 0.975 ETH.

The redemption fee is per-branch and falls in the range 0.5% to 2.5%. The fee is denominated in collateral and is retained by the redeemed trove as residual collateral. Mechanically, a redemption removes the full gross collateral from the trove's accounting and burns the matching debt; only the net-of-fee amount actually leaves the trove, so the fee portion stays inside and increases the trove's post-redemption ICR. The fee does not flow to FEE stakers (see Fees).

How multi-branch redemption works

You call one function on the top-level Aggregator. It splits your RD across all active (non-shutdown) branches in proportion to each branch's base debt share, so you receive a basket of collateral, not just one token. A branch with 50% of the system's base debt gets 50% of your redemption flow; a branch with 5% gets 5%.

You send RD and receive a basket of collateral, not a single token. The protocol splits your redemption across every active branch in proportion to its base debt share, then hands you that mix at the oracle price, minus the per-branch fee. Weights shown are illustrative.

Inside each branch, redemption claims collateral from the lowest-ICR troves without Redemption Shield first and works upward. Below-MCR troves and dust ("mini-dwarf") troves are skipped automatically. Troves with Redemption Shield enabled are not touched in normal mode; only branch shutdown can route redemption through the Redemption Shield cohort book.

A revert in one branch reverts the entire redemption transaction, so scripted redemptions should account for it.

Developer reference: Redemption for the exact redemption call, the per-branch hint arrays, and the shutdown path.

When you can redeem

• After the bootstrap period. Redemption is disabled for the first 14 days after deployment. The system needs that time to settle.
• When there is redeemable supply. The protocol enforces a redemption "quota" that refills over time. If a lot of redemption has already happened recently, you may need to wait a bit before more is available. The dashboard shows live capacity (integrators: see the developer reference). Here is what the quota does during a redemption demand shock — about 1% of system debt is redeemable instantly, and capacity refills at 4% of system debt per day, so even a large wave clears within a couple of days (mechanics in Redemption mechanism):

The quota is a token bucket sized in % of system debt, not a fixed number of RD. About 1% is redeemable instantly (the burst reserve) and it refills at 4% per day. A wave bigger than the bucket doesn't fail everyone at once — the excess simply waits for the refill, so even a large shock clears in a couple of days. Live capacity: Aggregator.redemptionQuotaAvailable().

• When at least one branch has base debt. Redemption walks the base book first, by branch. If every branch has only troves with Redemption Shield enabled left, normal-mode redemption is exhausted (and you'd be looking at shutdown-mode redemption, see Shutdown redemption).

What it costs

• The redemption fee, in collateral. 0.5%–2.5% per branch, paid out of the collateral you receive.
• Gas. Each branch walk is O(troves walked). _maxIterations is a per-branch cap. Multi-branch redemption is generally more gas-intensive than a Liquity v1 redemption was.

There is no upfront RD fee, every RD you send is credited against borrower debt at par. The fee comes out of the collateral leg.

What the redeemed borrower experiences

Their trove ends up with less debt and less collateral, in proportions that keep their ICR roughly the same. They're not "liquidated", that's a different path. See Redemption shield for how borrowers can opt out.

They also keep the redemption fee. The fee is taken in collateral but stays inside the redeemed trove as residual collateral, which raises its post-redemption ICR, a small compensation for being chosen. The one exception: while a branch is under-collateralized, that fee is instead converted to RD and used to pay down the bad debt. See bad-debt sink.

Shutdown redemption

When a branch is shut down (or the whole system is), redemption switches to a different pricing schedule. See Shutdown redemption.

Deep dive

Redemption mechanism covers the full per-branch walk, basket weights, hint construction, Redemption Shield and base bookkeeping, and bad-debt-sink branch handling.