Redemptions
Redemptions form a pivotal aspect of Beraborrow's operations, allowing users to convert $NECT
into Collateral
at an exact dollar equivalent value.
Process: The redemption mechanism is straightforward. For an x amount of
$NECT
, users receive an x dollar worth ofCollateral
in return.Fee Structure: The redemption process includes an algorithmic fee, calculated as per the formula: For the sake of simplicity, we will use
$iBGT
in this example but the process is the same for all collateral assets.
E.g. with a 1% redemption fee and iBGT
valued at $500, redeeming 100 $NECT
would result in receiving 0.198 iBGT
(0.2 iBGT - 0.002 iBGT as the redemption fee).
Impact on Base Rate: Significant redemption transactions affect the base rate, influencing future redemption fees.
The baseRate
is a dynamic variable that increments with each redemption and decays towards zero over a 24-hour half-life. The formula for the baseRate adjustment upon redemption is:
Borrower’s Technical Perspective on Redemptions
Impact on Borrowers: In the event of a redemption against a borrower's Den, there's no net monetary loss. However, the
iBGT
exposure of the borrower decreases while the collateral ratio of the Den improves.Avoiding Redemption: To minimise the risk of their Dens being chosen for redemption, borrowers should maintain a high collateral ratio. Dens with lower collateral ratios are the first to be targeted in redemption events, as redemptions take place against the Dens with the lowest collateral ratio.
Last updated