Redemptions

Peg Mechanisms

GREEN maintains a close association with USD due to its redeemability for collaterals at face value (i.e. 1 GREEN can be exchanged for $1 worth of a collateral of choice), and the mandated minimum collateral ratio of 120%. These conditions create a price floor and ceiling, respectively, through arbitrage opportunities. These are known as "hard peg mechanisms" as they rely on explicit operations.

However, GREEN also utilizes other, indirect methods to maintain USD parity — referred to as "soft peg mechanisms". One such mechanism is parity as a Schelling point. As the Ascend protocol treats GREEN as equivalent to USD, parity between the two is an inherent equilibrium state of the system.

Another mechanism is the minting/borrowing fee on new debts. As redemptions rise (indicating GREEN is below $1), the baseRate also increases — thus making borrowing less appealing, which prevents new GREEN from flooding the market and driving the price below $1.

Redemption

A redemption refers to the act of exchanging GREEN for collateral at face value, assuming 1 GREEN is exactly equal to $1. Therefore, for X GREEN, you receive X Dollars worth of collateral in return.

Users are free to redeem their GREEN for any collateral of choice among those supported by Ascend anytime without restrictions. However, a redemption fee may be imposed on the redeemed amount.

For instance, if the prevailing redemption fee is 1%, the price of weETH is $500, and you redeem 100 GREEN, you would receive 0.198 weETH (0.2 weETH less a redemption fee of 0.002 weETH).

Note that the redeemed amount contributes to the calculation of the baseRate and may influence the redemption fee, particularly for large amounts.

Redemption Fee Calculation

Under normal circumstances, the redemption fee is calculated using the formula:

(baseRate + 0.5%) * CollateralDrawn

baseRate Calculation

Redemption fees are based on the baseRate state variable in Vault Manager, which is dynamically updated. The baseRate rises with each redemption and decays proportionally to the time elapsed since the last redemption or GREEN issuance (fee event).

Each redemption causes the following changes:

• The baseRate experiences decay relative to the time passed since the last fee event.

• The baseRate increases by an amount in proportion to the fraction of the total GREEN supply that was redeemed.

Redemption effect on Vault

If a vault is redeemed against, it does not suffer a net loss. However, its collateral exposure will decrease. The vault's collateral ratio will also improve after a redemption.

The most effective way to prevent redemption against your vault is to maintain a high collateral ratio relative to the rest of the vault in the system. Keep in mind: The riskiest vault (i.e., the least collateralized vault) are targeted first when a redemption occurs.