Redemption Fees

You can use cUSD to redeem any type of supported collateral at face value, given sufficient liquidity. This means that for every 1 cUSD, the redeemer can receive 1 USD worth of collateral in return.

However, doing so incurs a redemption fee, which is designed to protect the protocol by disincentivizing redemptions when the protocol's collateral ratio is low.

The redemption fee is calculated:

Redemption fee = (Base rate * 0.5%) * Collateral Redeemed

The base rate is dynamic and rises with each redemption, then decays in proportion to the time lapsed from the previous redemption.

It is important to note that redemption fees are paid to the user who originated the vault, and not to the protocol.

Redemption fees are not incurred by vault originators when they repay their debt and close their vaults.

Example:

Bob wants to redeem 1,000 cUSD for 200 xFIL.

The price of xFIL = $5

The prevailing redemption fee is 1%.

Bob will receive 198 xFIL as 2 xFIL is paid as a redemption fee to the vault's originator.