# Redemptions

### What is redemption?

Redemption allows users to exchange USDS for LSD at face value. This mechanism gives USDS holders the option to redeem USDS for the underlying collateral at any time. Redemptions are always honored such that 1 USDS equals $1 worth of LSD.

It's important to note that the redemption mechanism is separate from repaying your Trove's debt. Paying back the debt is free of charge, while redemptions incur a fee.

### **How does redemption work?**

**Here's a simple workflow of how redemption works:**

* A user comes along to redeem their USDS.&#x20;
* All Troves are sorted from lowest collateral ratio to the highest collateral ratio, with the riskiest Troves at the top.&#x20;
* The redeemed USDS is used to pay off the debt of the riskiest Trove(s) in return for their collateral.&#x20;
* The Trove owner’s remaining collateral is left for them to claim. Borrowers who are redeemed against do not incur a net loss.

When USDS is redeemed, the LSD provided to the redeemer is taken from the Trove(s) with the lowest collateral ratio, even if it is above 110%. If you have the Trove with the lowest ratio at the time of redemption, you will have to give up some of your collateral, but your debt will be reduced accordingly.&#x20;

The USD value by which your collateral is reduced corresponds to the nominal USDS amount by which your Trove’s debt is decreased. You can think of redemptions as if someone else is repaying your debt and retrieving an equivalent amount of your collateral. One positive side effect of redemptions is that they improve the collateral ratio of the affected Troves, making them less risky.

### What are the types of redemption?

There are two types of redemption:

*   Partial Redemption:

    A partial redemption does not reduce your debt to 0.

    For example, let's say you have a Trove with 2 LSD tokens collateralized and a debt of 3,200 USDS. The current price of LSD is $2,000, which puts your collateral ratio at`125% (= 100% * (2 * 2,000) / 3,200)`.\
    If someone redeems 1,200 USDS for 0.6 LSD token, they will repay 1,200 USDS of your debt, reducing it from 3,200 USDS to 2,000 USDS. In return, 0.6 LSD token, worth $1,200, is transferred from your Trove to the redeemer. Your collateral will decrease from 2 to 1.4 BNB, while your collateral ratio will increase from `125%` to `140% (= 100% * (1.4 * 2,000) / 2,000)`.
*   Full Redemption:

    A full redemption pays off a Trove's debt in full, which means your Trove is closed, and you can claim your collateral surplus and the Liquidation Reserve at any time. Using the same example, if someone redeems 3,200 USDS for 1.6 LSD tokens, and the redeemed amount is larger than your debt minus 200 USDS (set aside as a Liquidation Reserve), your debt of 3,200 USDS is entirely cleared, and your collateral will decrease by $2,600 worth of LSD tokens, leaving you with a collateral of `0.4 BNB (= 2 - 3,200 / 2,000)`.

### **How is the redemption fee calculated?**

The redemption fee can be derived through the formula (baseRate + 0.1%) \* LSD or BNB drawn, where baseRate refers to the borrowing cost of the underlying asset.

### How is baseRate calculated?

The redemption fee calculation in Sable is a dynamic process based on the current state of the `baseRate` variable. This variable is updated with each redemption and decays over time since the last fee event (redemption or USDS issuance). The baseRate is then incremented by a proportion of the total USDS supply redeemed, and the final redemption fee is calculated as (baseRate + 0.1%) \* LSD drawn.
