Redemptions
What are Redemptions and how do they work?
Redemptions play a vital role in maintaining ONE’s peg by establishing a decentralized price floor around $1—without reliance on centralized assets or third parties.
A redemption involves exchanging ONE for its underlying collateral (LSTs) at face value, treating 1 ONE as exactly $1. While redemptions can be initiated by anyone, they are only profitable when ONE trades below $1.
During a redemption, the user sends ONE to the protocol and receives a proportional mix of S, stS, wOS, and LBTC, minus a redemption fee. The specific composition of collateral returned is determined by the current distribution of assets within the Stability Pools.
Redemptions first affect loans with the lowest interest rate.
What happens if two Troves have the same interest rate (IR)?
When two Troves share the same interest rate, the system applies a Last In, First Out (LIFO) rule. This means the Trove that most recently set its interest rate will be prioritized for redemption.
When can redemptions occur?
Redemptions can take place at any time; however, they typically only occur when it is profitable to do so. This is generally the case when ONE is trading below $1, after accounting for the current redemption fee.
Who can initiate a redemption?
Any address can initiate a redemption, provided that they have a sufficient amount of ONE to do so. However, we expect redemptions to be mainly performed by professional bots rather than humans.
What happens if my Trove gets redeemed?
A redemption functions as if another user is repaying a portion of your debt in exchange for receiving an equivalent amount of your collateral.
If your collateral (LSTs) is redeemed, the corresponding amount of your debt is paid off by the redeemer. In return, they receive a portion of your collateral, minus the redemption fee, which remains in your Trove.
As a result, you do not incur a net loss in USD terms at the time of redemption. In fact, due to the retained redemption fee, you may experience a slight gain as the peg stabilizes.
How do redemptions work with multiple collateral assets?
ONE is collateralized by a diversified set of assets. To enhance economic safety and system resilience, Soneta does not allow redeemers to freely choose which collateral to redeem. Instead, the protocol algorithmically distributes redemptions across a mix of supported collateral types, improving the overall backing quality of ONE.
The process starts with the Troves paying the lowest interest rates in each collateral market and continues until the full amount of ONE is exchanged for collateral assets. Redemptions may be either partial or full, depending on the amount being redeemed and the availability of suitable Troves.
Is there a redemption fee?
Yes. Redemption fees exist in Soneta with adjusted parameters that allow for faster fee decay over time.
The fee is deducted as a percentage of the total LST collateral withdrawn during a redemption. In Soneta the redemption fee is retained within the system and returned to the affected Trove’s owner as part of their remaining collateral - enhancing fairness and user alignment.
Redemption fees are determined by the baseRate variable, which is dynamically updated:
The
baseRateincreases with each redemption event.It decays exponentially over time since the last redemption, with a half-life of 6 hours.
When a redemption of x ONE occurs:
baseRate is first decayed based on the time elapsed since the previous redemption-related event.
Then, it is incremented proportionally by the redeemed amount relative to the total ONE supply (i.e., x / total_ONE_supply).
The actual redemption fee percentage is calculated as:
min(0.5% + baseRate x 100%)
How can I stay protected from redemptions?
Your exposure to redemption risk depends primarily on two factors: the interest rate you set and the market price of ONE.
The interest rate you assign to your Trove determines your position in the redemption queue:
A higher interest rate places your Trove further back in line, meaning more ONE must be redeemed before your position is affected.
A lower interest rate increases the likelihood that your Trove will be targeted earlier in the redemption process.
By managing your interest rate strategically, you can control your level of exposure and better protect your position.
The market price of ONE is the second key factor influencing redemption risk. When ONE trades above $1, redemptions are no longer profitable and are expected to cease. Strong market demand can sustain a price above $1 for extended periods.
During such periods of elevated demand, you can safely lower the interest rate on your Trove without significantly increasing your exposure to redemptions.
What happens when redemptions cause a debt of a Trove to fall below the minimum amount?
If a redemption reduces a Trove’s debt below the minimum required amount (e.g., 2,000 ONE), the handling depends on the extent of the reduction:
Fully Redeemed Trove (Debt reduced to 0):
If the redemption amount exceeds the entire debt, the Trove is not closed. It remains open with zero debt and any remaining collateral. The Trove owner may either:
Close the Trove by withdrawing the remaining collateral, or
Re-borrow, bringing the debt back above the minimum threshold, adding more collateral if necessary.
Partially Redeemed Trove (Debt between 0 and 2,000 ONE):
If the redemption leaves the Trove with a residual debt below the 2,000 ONE minimum, it also remains open with the remaining debt and collateral. In this case, the owner may:
Repay the remaining debt in full and withdraw their collateral to close the Trove, or
Borrow additional ONE to raise the debt above the required minimum, supplementing collateral if needed (re-borrow as mentioned above).
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