> For the complete documentation index, see [llms.txt](https://docs.indigoprotocol.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.indigoprotocol.io/readme/redemptions.md).

# Redemptions

## Overview 🌐

### Understanding Redemptions

Redemptions are a critical mechanism in Indigo Protocol that help maintain the stability of iAssets by providing an opportunity for users to exchange iAssets for underlying collateral. This process helps correct market imbalances and ensures that the price pegs of iAssets are maintained.

In [Indigo Protocol V3](/readme/indigo-protocol-v3.md), redemption capacity is also provided through the Indigo OrderBook and Peg Stabilization Module (PSM), in addition to direct loan redemptions.

## Redemption Process ⛓️

### Loan Redemptions

The redemption process for CDPs involves two main steps:

1. **Redemption:** Users redeem by exchanging their iAssets for a portion of the underlying collateral when a CDP is below the Redemption Margin Ratio (RMR). In V3, the collateral returned matches the collateral type backing the loan (ADA or a CNT).
2. **Collateral Transfer:** Upon successful redemption, the redeemed CDP will have a Collateral Ratio equal to RMR, and the redeemed iAsset amount will be burned.

At V3 launch, the Indigo Foundation controls loan redemptions through an optional protocol-configurable redeemer signer. When a signer is applied, the partial loan redemption fee is removed.

### Indigo OrderBook

The Indigo OrderBook (formerly ROB) supports bi-directional orders:

* **Buy orders:** Position owner deposits collateral to purchase iAssets (collateral → iAsset).
* **Sell orders:** Position owner deposits iAssets to sell for collateral (iAsset → collateral). Sell orders can accept multiple collateral assets with individually configured limit prices.

The reimbursement fee is applied on the redeemed amount and credited to the position owner in the asset supplied by the redeemer.

### Peg Stabilization Module (PSM)

The PSM provides 1:1 swaps between approved iAssets and paired stable-value collateral assets (e.g., iUSD/USDCx). Users can mint iAssets by depositing stablecoins or redeem iAssets for stablecoins, subject to available PSM liquidity and direction-specific enablement by the DAO.

## Incentive to Redeem 📈

### Why Redeem?

Redemptions are incentivized as they provide users with an arbitrage opportunity in the presence of price discrepancies between the iAssets oracle price and their DEX trading price. When iAssets trade below their peg, users can buy them at a discount on the market and redeem them for a higher value in collateral, thereby stabilizing the asset's price.

## Redemption Margin Ratio (RMR) 💹

The Redemption Margin Ratio is a critical parameter that dictates the level of over-collateralization required to be exempt from the possibility of redemption. RMR varies per iAsset and per collateral type. Each iAsset/collateral pair has its own LR, MR, and RMR values configured through governance.

## Fees 💸

In V3, redemption fees are structured as follows:

1. **Loan Redemption Processing Fee:** Paid to the Treasury in the collateral asset of the loan.
2. **Loan Redemption Reimbursement Fee:** Returns a percentage of the collateral back to the loan from the total value returned from redemption.
3. **PSM fees:** Optional minting and redemption fees per PSM pair, configurable by the DAO.
4. **OrderBook reimbursement fee:** Applied on the redeemed amount and credited to the position owner in the asset supplied by the redeemer.

By implementing these fees and maintaining Redemption Margin Ratios per collateral pair, Indigo Protocol ensures a balanced approach to maintaining iAsset stability while providing consistent revenue streams for the protocol and its participants.