Details about redemptions in the xBacked protocol
Redemptions are a mechanism witin xBacked that guarantee 1 xUSD can always be redeemed for $1 USD of underlying collateral. This is different to repaying your own debt. It is more like paying down system debt in the event the value of XUSD drops below $1 USD
When a user redeems xUSD on xBacked, the redemption is made against the riskiest vault in the system even if that vault's collateral ratio is over the minimum of
110%. The xUSD is then used to repay some of that vaults debt, and the collateral transferred from the vault to the redeemer.
The owner of a vault will not incur a net loss, but exposure to their collateral will be reduced.
There is a small fee taken from the redeemed collateral. For example, if you redeem 100 xUSD for $100 worth of Algo, the fee will be taken by the protocol as a fee.
Vaults are not sorted on chain. Instead, the protocol relies on a network of Keepers monitoring for riskier vaults than those in the current list. When one of these keepers finds a riskier vault, and successfully propose it, they receive 0.075% of that vaults collateral as a reward with the protocol taking 0.025% as a fee to distribute.