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How RD stays near $1

RD targets $1. The protocol uses three mechanisms to keep market price there: redemption arbitrage, an adaptive interest rate, and, in sustained stress, an internal price called par.

The first two run constantly. The third is a backstop that engages only in extreme conditions. This page covers all three from the RD holder's perspective.

Redemption arbitrage​

Anyone holding RD can swap it for collateral at $1, minus a small fee. So whenever RD trades below $1 on the open market, the trade is:

buy RD on a DEX at $X (X < 1)
redeem 1 RD for $1 of collateral, minus the redemption fee
sell collateral at market
profit ≈ (1 − redemption_fee) − X

That profit motive pulls buyers into the market, which lifts the price toward $1. The protocol itself doesn't have to do anything, it just makes the redemption path available. See Redemption.

This sets a floor under RD's price. There's no equivalent ceiling, nothing in the protocol mints fresh RD into open-market sales above $1. The "above $1" case is handled by the second mechanism.

The adaptive interest rate​

A controller adjusts the system-wide borrow rate based on RD's market price:

  • RD above $1. Holding RD is unusually attractive, demand exceeds supply. The controller lowers the borrow rate. Cheaper borrowing brings new borrowers in to mint RD and sell it. Supply expands; price falls toward $1.
  • RD below $1. Demand is weak. The controller raises the borrow rate. Existing borrowers find it expensive to carry debt and start repaying (which means buying RD back from the open market). Supply contracts; price rises.

The rate moves slowly, maximum slew is about 0.25% per hour at the 2% bias point. Borrowers feel this as a gradually changing APR. The bias is 2% and the bounds are 0.1% to 30%. See Borrow rates.

The two mechanisms above are constantly active and handle the vast majority of imbalances. Together they're enough to keep RD near $1 in normal markets.

Par​

The protocol has a third mechanism for the rare case when redemption + adaptive rates aren't enough: an internal price called par.

Almost always, par is exactly $1.00. Under sustained stress, meaning a meaningful price deviation that has held for more than a day at a time, the controller can adjust par within a bounded range of $0.85 to $1.20. Par cannot move faster than $0.001 per hour.

What par actually does​

When the protocol moves par, it's changing the price at which redemption settles. If par is $1.02 and the redemption fee is 0.5%, a redeemer hands the protocol 1 RD and receives 1 × $1.02 × (1 − 0.005) ≈ $1.015 of collateral. That extra penny widens the arbitrage spread, which pulls more redeemers in and accelerates the closing of the imbalance.

Practically:

  • If RD has been trading persistently below $1 (sustained excess supply), the protocol can move par slightly above $1 to make redemption arbitrage more profitable per RD, pulling supply out of the market faster than the rate response alone.
  • If RD has been trading persistently above $1 (sustained excess demand), the protocol can move par slightly below $1, which signals that holders may want to redeem before further changes.

Par is a backstop. It's not a knob the protocol turns in normal operation.

Why it's bounded and slow​

If par could move arbitrarily fast, it would be a manipulation vector: a flash-loan attacker on the oracle could push par dramatically in a few blocks. The hard cap of $0.001/hour means a worst-case full-band traversal would take more than a year. In any realistic stress event, par moves only a fraction of a cent.

If par could move outside $0.85 to $1.20, the protocol's solvency assumptions would no longer hold. The bounds are the hard limit of how much stress the protocol is willing to absorb internally before requiring some other intervention (e.g. branch shutdown).

Who controls par​

Nobody, in the human sense. Par is moved only by the on-chain controller (RateParControl) as a deterministic function of the RD/USD market-price oracle. There is no admin path, no governance vote, no multisig key that can set par. The controller's gains and bounds are immutable.

What you should expect as an RD holder​

  • Normal markets: RD trades close to $1. Par = $1. Nothing to do.
  • Mild imbalance (a few days of pressure): RD may trade slightly off $1; the adaptive rate is moving. Par holds at $1. Nothing to do.
  • Sustained imbalance (a week+): par may have moved. Read the dashboard for live values. If you're an arbitrageur, this is when redemption becomes most profitable.
  • Always: redemption is available (after the 14-day bootstrap period) at the prevailing par. RD's lower-side price is supported by this arbitrage.

What this does not mean​

  • RD is not "the protocol prints money when it wants to." Every RD in existence corresponds to overcollateralized trove debt; supply only grows when collateral is locked.
  • Par is not a governance vote. The controller is autonomous. No human can set par.
  • Par is not the price you pay for RD. Market price is. Par just changes the rate at which redemption settles.

Deep dive​

  • Peg & PI controller: the controller's full state machine, gains, deadbands, and dwell timers.
  • Redemption: the redemption flow itself.
  • Oracles: how the controller measures market price.