# Redemption fee

### Redemption fee formula <a href="#how-is-the-redemption-fee-calculated" id="how-is-the-redemption-fee-calculated"></a>

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

You can find more details on the redemption page:

{% content-ref url="../../tokenomics/pust-token/redemption" %}
[redemption](https://palm-finance.gitbook.io/homepage/tokenomics/pust-token/redemption)
{% endcontent-ref %}

Users can pratice arbitage on Palm by redemption, the process is: when PUST market price is below $1, you can still redeem collaterals using PUST at its face value ( 1PUST=$1).

For example  when PUST market price is $0.98, you spend $98 to purchase 100 PUST on DEXs, and use this 100 PUST you can redeem $100 worth of collateral (i.e ETH).This mechanism bring the arbitrage space and ensure taht PUST price also follows dollar value.&#x20;

Particiapting in Redemption 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).
