Redemption

What is redemption?

Redemption is the process of exchanging PUST for collateral at face value, as if 1 PUST is exactly worth $1. That is, for 100 PUST you get $100 worth of collateral in return. Users can redeem their PUST for collateral at any time without limitations. However, a redemption fee is charged.

For example, if the current redemption fee is 1%, the price of collateral Token A is $500 and you redeem 100 PUST, you would get 0.2 collateral TokenA and pay a redemption fee of 1 PUST (1% of redeemed value).

How can I avoid being redeemed against?

The best way to avoid being redeemed against is to maintain a high collateral ratio relative to the other Asset Portfolios in the system. Remember: the riskiest Asset Portfolios (i.e. lowest collateralized Asset portfolios) are first in line when a redemption takes place.

Is a redemption the same as paying back my debt?

No, redemption is a completely separate mechanism. All you should do to pay back your debt is to adjust your Asset Portfolio's debt and collateral.

How do you prevent the Curve Pool become imbalanced when many people lever up with PUST?

When there is a lot of demand for leverage, this causes a lot of PUST to be minted and enter the market. For many new stablecoin projects, the stablecoin mostly ends up in one place-the Curve LP-because that is the only place where there are incentives for stablecoins.

In our case the redemption mechanism prevents the PUST price from getting out of whack by effectively creating a profitable space for arbitragers to take when the market price is below $1.

Additionally, since Palm offers incentives for users to deposit PUST in our Stability Pool, we at least have one native demand for PUST at launch, so high levered borrowing volume has less impact in terms of causing a Curve pool imbalance.

How is the redemption fee calculated?

Under normal operation, the redemption fee is given by the formula (baseRate + 0.5%) * collateral_drawn

How is the baseRate calculated?

Redemption fees are based on the baseRate state variable in Palm Finance, which is dynamically updated. The baseRate increases with each redemption, and decays according to time passed since the last fee event - i.e. the last redemption or issuance of PUST. Upon each redemption:

• baseRate is decayed based on time passed since the last fee event

• baseRate is incremented by an amount proportional to the fraction of the total PUST supply that was redeemed

• The redemption fee is given by (baseRate + 0.5%) * collateral_drawn

How can I calculate the redemption fee as an arbitrageur?

The fee is paid in PUST. The PUST needed to cover the redemption amount and the fee can be calculated using this formula. The PUST balance needed is represented byZ Zto perform a redemption amount of Y

​​​

whereZ = Y + XZ=Y+X​and

• ​BR = BR=decayed Base Rate

• ​\beta = β=2

• ​S = S=Total PUST Supply

• ​Z = Z=Redeemer balance of PUST

• ​X = X=PUST Fee

• ​Y = Y=Intended redemption amount

As a borrower, do I lose money if I'm redeemed against?

If your Asset Portfolio is redeemed against, you do not incur a net loss. However, you will lose some of your collateral exposure. Your Asset portfolio's collateral ratio will also improve after a redemption. To compensate for this change, we will be giving 20% of the redemption fee back to the user who is redeemed against.What about staked ibTKN rewards that the Asset portfolio owner has accumulated, but not redeemed? Palm will unstake the ibTKNs properly so that the Asset portfolio owner will receive the interest rewards, and the ibTKNs will be then given to the redeemer. Since base ibTKN rewards are accounted for in the price, the Asset portfolio owner is not incurring any loss due to this property.

Secondary Redemption Mechanism

We also have a secondary redemption mechanism, which is intended to make it easier to arbitrage PUST which raises the effectively PUST price floor. The secondary mechanism allows you to choose a specific collateral from the bottom Asset portfolio in the sorted Asset portfolios array and only redeem against that. So if that bottom Asset portfolio is collateralized by USDC + WETH, you could choose to do a partial redemption and redeem PUST for just the USDC in the Asset portfolio. After completing this redemption, the Asset portfolio will likely no longer be the bottom Asset portfolio in the system and then you can do the same thing to another Asset portfolio. The redeemer can only perform this on one Asset portfolio, and one collateral at a time. This will make it easier to arbitrage the peg if PUST trades below $1 due versus being forced to arbitrage against multiple types of assets.