Rigid Redemption and eUSD Price Stability
Rigid Redemption
Last updated
Rigid Redemption
Last updated
What is Rigid Redemption?
Rigid redemption is the process of exchanging eUSD/peUSD for ETH at face value, as if 1 eUSD is exactly worth $1. In other words, for x eUSD, you get x dollars worth of ETH in return.
Users can redeem their eUSD/peUSD for ETH at any time without limitations. However, a 0.5% Rigid Redemption fee (subject to revision by the Lybra Community DAO) is charged on the redeemed amount, and this fee is fully paid to the redemption provider.
Please be aware that if you deposit collateral fund and choose to redeem others' collateral within a 3-day period, a service fee of 0.1% will be applied.
For Example,
If the current redemption fee is 0.5%, the price of ETH is $1,500, and you redeem 1,200 eUSD, you would receive 0.796 ETH (0.8 ETH minus a redemption fee of 0.004 ETH).
Please note that the redeemed amount is considered when calculating the base rate and may impact the redemption fee, especially for large amounts.
Is Rigid Redemption the same as paying back my debt?
No, Rigid Redemption and paying back debt are two entirely separate mechanisms. Rigid Redemption involves exchanging eUSD/peUSD for ETH at face value, while paying back debt is the adjustment of collateral and debt.
How is the Rigid Redemption fee calculated?
Under normal operation, the Rigid Redemption Fee = 0.5% * Redeemed ETH.
If the Rigid Redemption is conducted through passively generated LST (rebased LST portion), the redemption fee is 0.
How does the Rigid Redemption mechanism work?
The passively increased LST in the Lybra Protocol can be used for Rigid Redemption at any time. (i.e., passively increased LST = LST balance - Total deposited rebase LST)
Lybra Protocol offers a Rigid Redemption service feature. If a user chooses to provide Rigid Redemption services, they will be incentivized through service fee compensations, and other means to be determined.
Redemption Provider
As a (minter) borrower, you can choose whether to provide Rigid Redemption services. You will only participate in Rigid Redemption if you opt to become a redemption provider. When you activate the Rigid Redemption button, it allows other users to redeem all of your ETH/LST assets. They can do this by paying the equivalent amount in eUSD or peUSD.
During the redemption process, you will lose a portion of your collateral, but your debt will be reduced accordingly.
The USD value reduction of your ETH collateral corresponds to the nominal eUSD amount decrease in your debt. You can think of redemptions as if someone else is repaying your debt and retrieving an equivalent amount of your collateral. As a positive side effect, redemptions improve the collateral ratio of the affected collateral and debt, making them less risky. Redemptions that do not reduce your debt to 0 are called partial redemptions, while redemptions that fully pay off the debt are called full redemptions.
For example,
A user deposits 3 ETH ($4,500) as collateral and mints (borrows) 3,000 eUSD. This puts their collateral rate at 100% * 4500 / 3000 = 150%. Let's imagine this is the lowest collateral rate and look at two examples of partial and full redemptions:
Example of a partial redemption
Someone redeems your ETH using 1,500 eUSD, and the redemption fee is 0.5%. The redemption provider gets 0.995 ETH in return (=1500 * 99.5% / 1500), and your collateral is reduced from 3 ETH to 2.005 ETH. Your debt is now 1,500 eUSD, raising your collateral rate from 150% to 100% * 2.005 * 1500 / 1500 = 200.5%.
Example of a full redemption
Someone redeems your 3 ETH using 4,500 eUSD. Given that the redemption amount exceeds your debt, your debt of 3,000 eUSD will be fully liquidated, and the collateral will be reduced by 3,000 * 0.995 worth of ETH, leaving you with 1.01 ETH of collateral (= 3 - 3,000 * 0.995 / 1,500).
What are the advantages of being a Redemption Provider?
You can charge a 0.5% fee whenever someone redeems their eUSD against your ETH collateral.
You won't experience a total loss even if your collateral is redeemed. Only a part of your ETH position will be lost, and your eUSD debt will be reduced accordingly. Additionally, your collateral rate will increase to a much healthier level following the redemption.
The yield of the LBR reward as a redemption provider is increased by 10% (which can be adjusted by Lybra DAO Vote).
How can I avoid being redeemed against?
You'll only be subjected to Rigid Redemption once you choose to provide redemption services.
A user deposits 3 ETH ($4,500) as collateral and mints (borrows) 3,000 eUSD. This puts their collateral rate at 100% * 4500 / 3000 = 150%. Let's imagine this is the lowest collateral rate and look at two examples of partial and full redemptions:
