Liquity is a decentralized borrowing protocol that offers unprecedented benefits for borrowers.
A redemption is the process of exchanging LUSD for ETH at face value, as if 1 LUSD is exactly worth $1. That is, for x LUSD you get x US Dollars worth of ETH in return.
Users can redeem their LUSD for ETH at any time without limitations. However, a redemption fee is charged on the redeemed amount.
LUSD is a fully redeemable stablecoin. At any time, the protocol allows holders to redeem their LUSD for the underlying ETH collateral at face value. For example: A holder redeeming 100 LUSD would receive $100 worth of ETH collateral from the riskiest Trove(s), minus the current redemption fee.
The redemption mechanism creates a price floor for LUSD, pushing its price back to parity whenever it drops below $1. Holders have an incentive to redeem LUSD if they can buy it for less than $1 and then convert it into ETH at a price of exactly $1. Every redemption leads to a contraction of the total LUSD supply and to an adjustment of the base rate. Learn more.