Liquity Redemptions
Last updated
Last updated
Liquity makes use of a specific system when it comes to their Redemption mechanism. The system is based on a list of active positions - Troves, which are sorted by their c-ratio. If you are located at the top of the list, your Trove is next in line to get redeemed.
What does this mean exactly? Since redemption is based on the collateral ratio of your position; it can be as high as 220% but as long as it's the lowest collateralised on the list (meaning you’re 1st on the list), you are in risk of redemption.
The “Debt in Front” that is displayed in our Dashboard will show you what is the sum of the LUSD debt of all Troves with a lower collateral ratio than you. This can help you figure out at what level of risk are you currently.
Redemption is the process of exchanging LUSD for ETH at face value, as if 1 LUSD is exactly worth $1. That is, for x LUSD you get x Dollars worth of ETH in return. Who can do this? Any holder of LUSD can redeem their stablecoin for ETH at face value.
When a user wants to redeem, their LUSD is used to cancel debt from the riskiest trove in the system and the user receives a corresponding amount of ETH from that trove.
Person 1 has a trove with 1.15 ETH valued at $115 and a debt of 100 LUSD. His collateral ratio is 115%, which is the lowest collateral ratio of all troves in the Liquity system. Person 2 has 10 LUSD which she decides to redeem for ETH. Person 2 redeems her LUSD. Person 1 debt is reduced by 10 LUSD which is burned and $10 worth of collateral is taken from his trove. Person 1 now has 1.05 ETH valued at $105 and a debt of 90 LUSD. His collateral ratio is now 116.7%. Person 2 now has a balance of 0.1 ETH.
You can check out our Liquity stats website here where you can easily arrange the list to show you positions, for example, from lowest to highest C-ratio and vice versa.
As a solution to reduce the risk of getting redeemed, we created a Automation strategy specifically for Redemption. Users can now enable automated deleveraging based on LUSD debt amount in front (aka Debt-In-Front) of their Trove.
You can find it in the Liquity dashboard, by clicking on Automate tab in the upper bar.