💱 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 their underlying collateral. This process helps correct market imbalances and ensures that the price pegs of iAssets are maintained.

Redemption Process ⛓️

Two-Step Procedure: The redemption process in Indigo Protocol involves two main steps:

1. Redemption: Users redeem by exchanging their iAssets for a portion of the underlying ADA collateral when a CDP is below the Redemption Margin Ratio (RMR).

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.

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. It varies for each iAsset as follows:

• $iUSD: 185%

• $iETH: 150%

• $iBTC: 150%

Fees 💸

1. Redemption Fee: A 2% fee is applied to the total redemption amount. This fee is split between the redeemed CDPs and INDY Stakers. Specifically, 1% is returned to the CDP, improving its Collateral Ratio and lessening the burden of redemption, and 1% is distributed to INDY Stakers as revenue.

2. Partial Redemption Fee: A flat ADA fee is charged for partial redemptions to manage system load and ensure the security of the protocol. This fee structure encourages full redemptions over partial ones.

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