How RD stays near $1

RD targets $1. The protocol uses three mechanisms to keep market price there: an adaptive interest rate, redemption arbitrage, 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.

The adaptive interest rate

A controller adjusts the system-wide borrow rate based on RD's market price. Because the rate changes both the cost of borrowing and the yield paid to Stability-Pool depositors, it pushes on supply and demand at the same time:

• 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), and thinner Stability-Pool yield makes holding RD less compelling (demand eases). Both push price toward $1.
• RD below $1. Demand is weak. The controller raises the borrow rate. Carrying debt becomes expensive so borrowers repay, which means buying RD back off the market (supply contracts), and richer Stability-Pool yield draws holders in (demand firms). Both push price toward $1.

The controller nudges one system-wide borrow rate off its 2% bias, and the rate pushes on both sides of the market at once. Above peg it eases the rate — more borrowing (supply up) and thinner Stability-Pool yield (demand down). Below peg it does the mirror image. Either way, supply and demand both move RD back toward $1.

The rate moves slowly, maximum slew is about 1% per hour at the 2% bias point. Borrowers feel this as a gradually changing APR. The bias is 2% and the system-rate bounds are 0.25% to 50% APY. See Borrow rates.

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:

Redemption prices RD's collateral at par, so a below-$1 market price is a free spread: buy the discounted RD, redeem it for a full dollar of collateral (minus the fee), and sell. The profit is (1 − redemption_fee) − X, and chasing it is what lifts RD back toward $1.

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: RD is always redeemable for a par-priced basket of collateral, so it can't stay meaningfully below par − fee. There's no equivalent ceiling, nothing in the protocol mints fresh RD into open-market sales above $1; the above-$1 case is the adaptive interest rate's job.

Anyone can redeem 1 RD for $1 of collateral (the multi-collateral basket priced at par), minus the fee. So whenever RD trades below that, buying the discount and redeeming is free profit — arbitrage buying lifts it back. That sets a floor at roughly par − fee. There is no matching ceiling; above-peg pressure is the interest rate's job.

These two mechanisms 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. Par is the internal price at which the protocol values RD for borrowing, redemptions, and liquidations. For example, a rising par means redeemers get more nominal ($) value of collateral during redemption.

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 $0.75 to $1.30. Par cannot move faster than $0.001 per hour.

Even though the protocol can move par, RD is not a floating stablecoin like RAI. RAI lets its redemption price drift with the market with no fixed target; RD always targets $1. Par here is only a bounded, slow, stress-only stabilizer that nudges redemption arbitrage to pull RD back toward a dollar — through every market state, $1 is the value RD converges to over time.

What par actually does

When the protocol moves par, it's changing the price at which redemption settles — which moves the redemption floor with it, since the floor is just par − fee. 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.

Redemption settles at par, so the redemption floor sits a fixed fee below it: floor = par − fee. As the controller nudges par up and down over time, the floor tracks it, staying one fee lower the whole way. Par itself only moves in the bounded $0.75–$1.30 range, at most $0.001/hour.

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 $0.75 to $1.30, 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 control: the controller's full state machine, gains, deadbands, and dwell timers.
• Redemption: the redemption flow itself.
• RD Market Oracle: how the controller measures market price.