# Redemptions Deep Dive

This page explains **redemptions** at a deeper level: why they help peg defense and what they do to borrowers.

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**Not investment advice** — Redemption is a protocol mechanism, not a guarantee. This page is educational.
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## At a glance

* A redemption burns USDHN and returns collateral under protocol rules.
* Redemptions create an on-chain pathway that can reduce USDHN supply when it trades weak.
* Borrowers can be affected because redemptions may remove part of a Trove’s collateral while also reducing its debt.
* The redemption **ordering** is defined in deployed contract code (immutable per deployment). Fees and outcomes can vary with parameters and market conditions.

## What redemption does (mechanically)

A redemption is an on-chain action that, under protocol rules:

1. **burns** a specified amount of USDHN, and
2. **returns collateral** value close to that amount (minus fees), using protocol pricing.

This matters because it directly reduces USDHN supply.

## Why this can defend the peg (without hand-waving)

If USDHN trades below `$1` in the market:

* a user can buy USDHN at a discount (e.g., `$0.98`)
* redeem it through the protocol for collateral valued closer to `$1` per USDHN (minus fees)

This is an economic incentive:

* it increases demand for USDHN when it is cheap, and
* it reduces supply by burning redeemed USDHN

Both effects can push the market price upward, though fees and market constraints can limit how quickly it works.

## Borrower impact — three scenarios (with CR math)

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**Simplified math** — Exact deltas depend on fee rules and protocol pricing. The scenarios below are “directionally correct” and use round numbers.
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### Why CR often improves under redemption (one-line intuition)

If a redemption removes the same USD value `r` from collateral value `V` and debt value `D` (ignoring fees):

$$
CR' = \frac{V - r}{D - r}
$$

When `CR = V/D > 1`, then `CR' > CR`. Borrowers often see “less debt + less collateral” and a higher CR.

### Scenario 1 — one redemption: higher CR, smaller position

Assume a Trove starts with:

* collateral value `V = $200`
* debt `D = 100` USDHN\
  → `CR = 200 / 100 = 200%`

Now suppose `20` USDHN is redeemed against this Trove (simplified, ignoring fees):

* new debt: `D' = 80` USDHN
* collateral value removed: about `$20`
* new collateral value: `V' = $180`

New CR:

$$
CR' = \frac{180}{80} = 225%
$$

Interpretation:

* **more buffer** (higher CR)
* **less exposure** (smaller collateral position)

### Scenario 2 — redemption helps, but you can “undo it” by borrowing more

Continue from Scenario 1 (after redemption): `V = $180`, `D = 80` (CR `225%`).

If you mint an additional `40` USDHN later (no collateral change):

* `V` stays `180`
* `D` becomes `120`

Then:

$$
CR = \frac{180}{120} = 150%
$$

Practical takeaway: redemptions can improve safety in the moment, but **your future borrowing choices** can bring you back toward liquidation risk.

### Scenario 3 — redemption improves CR, but price risk still dominates

Continue from Scenario 1 (after redemption): `V = $180`, `D = 80` (CR `225%`).

If collateral value drops by 40% afterward (price move):

* `V` becomes `180 × 0.6 = $108`
* `D` stays `80`

Then:

$$
CR = \frac{108}{80} = 135%
$$

If your collateral branch `MCR` is above `135%`, the Trove can still become unsafe even after a redemption. Redemption is not a substitute for a CR buffer.

## Which Troves get redeemed (conceptual)

Protocols need a deterministic way to choose “where redeemed debt comes from.”

Many designs use an ordering that:

* prioritizes positions based on a borrower-selected parameter (often a rate/priority setting), and
* is easy to reason about for users and integrators

Hann Finance’s redemption ordering is defined in the deployed contracts and is **immutable for a given deployment**. Use the official UI to confirm you are interacting with the correct deployed contracts and to view current parameters.

## Practical ways to manage redemption impact (borrowers)

* Do not run with a minimal CR buffer.
* If advanced rate/strategy features exist in your branch, understand how they interact with redemption selection.
* Plan for the fact that redemptions can change your position size even if they improve CR.

## Next reads

* Main overview: [Redemptions & Risk](https://hann-finance.gitbook.io/hann-finance/protocol/redemptions-and-risk)
* Borrower safety basics: [Borrowing & Liquidation](https://hann-finance.gitbook.io/hann-finance/protocol/borrowing-and-liquidation)
* Full risk framing: [Risk Disclosure](https://hann-finance.gitbook.io/hann-finance/risks/risk-disclosure)