Redemptions
$AXD Redemptions
If $AXD ever trades below $1, Redemptions create a way to bring the price back in line.
What are Redemptions?
Redemptions allow any user to exchange (or "redeem") 1 $AXD directly with the protocol in return for $1 worth of collateral (e.g., sAVAX), even if $AXD is trading below $1.
What Happens During a Redemption:
• Holders can send $AXD back to the protocol and receive $1 worth of Collateral in return.
• Redemptions are processed by reducing the debt of open Troves, starting with those paying the lowest Interest Rates.
• Borrowers whose Troves are redeemed lose some of their Collateral exposure but aren’t charged a liquidation fee.
How Redemption works:
• If $AXD is cheaper on the open market, users can buy it, redeem it for Collateral, and profit — helping push $AXD’s price back toward $1.
• Redemptions also shrink the total supply of $AXD, adding upward pressure on the price.
When Can Redemptions Occur?
Redemptions are about timing and opportunities as a redemption on Aesyx can be initiated at any time.
In practice, redemptions usually take place only when they are profitable—generally when both of these conditions hold:
1. $AXD is trading slightly below $1.
2. The redemption fee is low.
When these criteria are met, redeeming 1 $AXD returns $1 worth of collateral, allowing the participant to capture the price difference as profit and stabilizing the AXD. This arbitrage pressure drives the market price of $AXD back toward its $1 target, thereby helping to restore and maintain dollar parity.
In other words, if $AXD is trading slightly below $1 and the Redemption Fee is low enough, users can profitably redeem $AXD for $1 worth of Collateral from the system.
Is There a Redemption Fee?
Each Redemption is subject to a small Redemption Fee to discourage abuse and help stabilize the system.
Key Points about the Redemption Fee:
• It has a floor of 0.5% plus the baseRate as below:
• The baseRate is a system variable that increases with each Redemption and decays over time if no Redemptions occur.
• Decay Mechanism: The baseRate decays exponentially over time, with a half-life of 6 hours.
• This design helps smooth fee levels based on how active Redemptions have been recently.
How the baseRate Changes During Redemptions
Each time a Redemption of $AXD happens:
1. Decay Step:
• The baseRate decays based on how much time has passed since the last Redemption or fee event.
2. Increment Step:
• The baseRate then increases proportionally to the size of the Redemption relative to the total $AXD supply:
This ensures that large Redemptions increase the baseRate more significantly, making subsequent Redemptions temporarily more expensive and discouraging rapid repetitive Redemptions.
What is the Base Rate — and How Does It Work?
The Base Rate is a dynamic variable inside Aesyx that influences the fees users pay when redeeming $AXD for Collateral. When users redeem $AXD, the Base Rate rises. The more frequent the Redemptions, the higher the Base Rate becomes. This discourages excessive Redemptions during volatile periods, helping stabilize $AXD’s price. By making Redemptions gradually more expensive when lots of users are redeeming, the protocol naturally nudges behavior back toward system stability reducing sudden drains on Collateral.
Step-by-Step: Redemption Process
1. Start a Redemption: A user sends their $AXD to Aesyx.
2. Debt Reduction: The protocol reduces the debt of open Troves until the redeemed amount is met.
3. Collateral Transfer: The user receives $1 worth of Collateral for each $AXD redeemed, minus a small fee.
4. Higher Average Interest Rate: After Redemption, the remaining Troves face a slightly higher average Interest Rate.
How Stability Pools Support Liquidations
Aesyx Stability Pools are the backbone of the Liquidation system.
• Users deposit $AXD into Stability Pools tied to each supported Collateral type.
• When a Borrower’s Trove becomes unhealthy and is Liquidated, $AXD from the Stability Pool is burned to cancel the Borrower’s debt.
• In return, the liquidated Collateral is distributed proportionally among Stability Pool depositors, along with a bonus for stepping in.
In short: Stability Pools protect the system — and pay you for helping. Learn more about Liquidations next.
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