Redemptions & Risk

How redemptions defend the USDHN peg and how they can affect Troves

This page explains redemption (USDHN → collateral via the protocol), why it exists, and what it means for borrowers and USDHN holders.

Not investment advice — Redemption and liquidation are protocol mechanisms, not guarantees. You can lose funds.

At a glance

• Redemption is a peg-defense mechanism: USDHN can be swapped back into collateral through the protocol.

• Redemptions can reduce USDHN supply when the market is weak.

• Borrowers may be partially redeemed depending on protocol rules.

• Understanding redemptions helps you manage both peg risk and borrower risk.

Redemption in one diagram

What is redemption?

Redemption is an on-chain action that:

1. burns a specified amount of USDHN, and

2. returns collateral value close to the redeemed amount (minus fees), according to protocol rules.

In many CDP systems, redemption creates an arbitrage pathway: if USDHN trades below $1, users may buy USDHN at a discount and redeem it for collateral valued closer to $1 (minus fees).

Who should care?

If you hold USDHN

Redemption is one reason USDHN can trend back toward $1 under normal conditions.

However, redemption may include fees, execution constraints, and market friction.

If you are a borrower

How are Troves selected for redemption?

Conceptual explanation — The selection ordering is defined in the deployed on-chain contract code and is immutable for a given deployment. This section describes the general intent and user-facing implications.

Most designs prioritize redemptions in a way that:

• targets positions contributing least to market demand (often linked to interest settings), and

• avoids complexity for users.

[TBD] Exact ordering rules and parameters — Document the exact contract function and ordering criteria once the deployment configuration is finalized.

What can you do to reduce redemption risk?

• Avoid running Troves at the edge of liquidation safety.

• If the system supports rate delegation or manager policies, use them to keep your rate aligned with market conditions.

• Understand that extreme market stress can trigger unusual behavior across both redemptions and liquidations.

Manual redemption (advanced)

Manual redemption is an advanced action. Contract addresses and UI entrypoints depend on the deployed network.

1

Step 1: Verify contracts

Use only official addresses (official UI, GitBook updates, or verified explorers).

Never approve tokens to unverified contracts. Phishing is common in DeFi.

2

Step 2: Approve USDHN

Approve the redemption contract/router to spend your USDHN.

[TBD] Function signatures — The exact function names and parameters should match the deployed contracts and ABI.

3

Step 3: Submit the redemption

Send the transaction with your amount and fee constraints (if supported). After success, you receive collateral to your wallet.

Deep dives (optional)

• Redemption mechanics (with CR examples): Redemptions Deep Dive

Next reads

• Borrowing safety basics: Borrowing & Liquidation

• StableSwap and liquidity: StableSwap DEX

• Full risk list: Risk Disclosure