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Rigid Redemption and vUSD Price Stability
Is rigid redemption the same as paying back my debt?
No, rigid redemption and paying back debt are two entirely separate mechanisms. Rigid redemption involves exchanging vUSD/rvUSD for ETH at face value, while paying back debt is the adjustment of collateral and debt.
How is the rigid redemption fee calculated?
Under normal operation, the Rigid Redemption Fee = 0.5% * Redeemed ETH.
If the rigid redemption is conducted through passively generated stETH, the redemption fee is 0.
How does the rigid redemption mechanism work?
- The passively increased stETH in the Vibranium Protocol can be used for rigid redemption at any time. (i.e., passively increased stETH = stETH balance - Total deposited ETH)
- Vibranium Protocol offers a rigid redemption service feature. If a user chooses to provide rigid redemption services, they will be incentivized through token airdrops, service fee compensations, and other means.
As a (minter) borrower, you can choose whether to provide rigid redemption services. You will only participate in rigid redemptions if you opt to become a redemption provider.
During the redemption process, you will lose a portion of your collateral, but your debt will be reduced accordingly.
The USD value reduction of your ETH collateral corresponds to the nominal vUSD/rvUSD amount decrease in your debt. You can think of redemptions as if someone else is repaying your debt and retrieving an equivalent amount of your collateral. As a positive side effect, redemptions improve the collateral ratio of the affected collateral and debt, making them less risky. Redemptions that do not reduce your debt to 0 are called partial redemptions, while redemptions that fully pay off the debt are called full redemptions.
A user deposits 3 ETH ($4,500) as collateral and mints (borrows) 3,000 vUSD/rvUSD. This puts their collateral rate at 100% * 4500 / 3000 = 150%. Let's imagine this is the lowest collateral rate and look at two examples of partial and full redemptions:
- Example of a partial redemptionSomeone redeems your ETH using 1,500 vUSD/rvUSD, and the redemption fee is 0.5%. The redemption provider gets 0.995 ETH in return (=1500 * 99.5% / 1500), and your collateral is reduced from 3 ETH to 2.005 ETH. Your debt is now 1,500 vUSD/rvUSD, raising your collateral rate from 150% to 100% * 2.005 * 1500 / 1500 = 200.5%.
- Example of a full redemptionSomeone redeems your 3 ETH using 4,500 vUSD/rvUSD. Given that the redemption amount exceeds your debt, your debt of 3,000 vUSD/rvUSD will be fully liquidated, and the collateral will be reduced by 3,000 * 0.995 worth of ETH, leaving you with 1.01 ETH of collateral (= 3 - 3,000 * 0.995 / 1,500).
What are the advantages of being a Redemption Provider?
- You can charge a 0.5% fee whenever someone redeems their vUSD/rvUSD against your ETH collateral.
- You won't experience a total loss even if your collateral is redeemed. Only a part of your ETH position will be lost, and your vUSD/rvUSD debt will be reduced accordingly. Additionally, your collateral rate will increase to a much healthier level following the redemption.
- The yield of the VIB reward as a redemption provider is increased by 20%.
How can I avoid being rigidly redeemed against?
You'll only be subjected to rigid redemption once you choose to provide redemption services.