Details about redemptions in the xBacked protocol

What are redemptions?

Redemptions are a mechanism within xBacked that guarantees 1 xUSD can always be redeemed for $1 USD of underlying collateral. This is different from repaying your debt. It is more like paying down system debt. This feature is only available 7 days after shutdown and is incentivized by allowing the user to purchase xUSD at a 1% discount

How do redemptions work?

A user can redeem xUSD from any vault of their choice 7 days after shutdown, the protocol allows this at a 1% discount. During redemption, the protocol keeps 0.5% of discounted collateral and sends the remaining to the user. The xUSD is used to repay the vaults debt and discounted collateral is sent to the user who performed the redemption.

The owner of a vault incurs a net loss because the collateral is purchased at a discount although this will lead to a healthier collateral ratio for such vaults.

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