Redemption Features

BPD, Money Protocol’s stablecoin, can be redeemed for its underlying BTC collateral at any time. The redemption value is determined based on the face value of the redeemed BPD tokens, the current BTC:USD exchange rate, and the current base_rate. Money Protocol allows for direct arbitrage opportunities whenever the market price of BPD falls below $1. By establishing a price floor of BPD, holders can exchange their tokens for BTC collateral, providing profit opportunities whilst maintaining the price peg stability of BPD against market volatility.

When a holder redeems BPD tokens, Money Protocol uses the tokens to repay debt starting with the riskiest Vaults first - Vaults that have the lowest collateral ratio. The corresponding amount of BTC is then transferred from the affected Vaults to the redeemer. However, the amount taken from each borrower is limited to their respective debt to ensure that borrowers can keep collateral surpluses. This means that borrowers do not experience a net loss during redemptions as they lose the same amount of debt valued in BPD terms, as BTC collateral valued in USD terms.

Redemptions positively impact the total collateralization of the system, which increases its robustness and price stability. Fully redeemed Vaults with zero debt are automatically closed, and the borrower can claim their BTC surplus. The protocol ensures that no Vault is left with a non-zero debt below 2,000 BPD by truncating the redeemed amount.

Redemption Fee:
Money Protocol sets the Redemption Fee based on two factors: the current base_rate and the proportion of the redeemed BPD relative to the entire stablecoin supply. At system launch, the base rate is initially set to 0% and can increase when redemptions occur and decay back to 0% if no redemptions occur in a given time period. The Redemption Fee cannot be lower than 0.5%. The Redemption Fee is deducted from the redeemed BPD, which ultimately decreases the amount of BTC the redeemer receives in return.