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Redemption

Exchanging a stablecoin with its issuer for the underlying currency at par. The mechanism that anchors a peg, and often unavailable to small holders.

Redemption is the arbitrage channel that makes a peg hold. If a token can be redeemed for $1 and trades at $0.99, buying and redeeming is profitable, and that buying pushes the price back up. Without a working channel the peg rests only on sentiment.

The details decide whether the channel functions in a crisis. Minimum sizes are often $100,000 or more, accounts require kyc and can take weeks to open, fees apply, and issuers generally reserve the right to suspend redemptions. A channel that closes under stress is not a channel.

This is also why depeg depth varies. A token with wide, working redemption tends to snap back within hours; one where the only exit is selling into a liquidity-pool can stay dislocated for days because the whole market is trying to use the same thin path out.

Related: depeg, fiat-backed-stablecoin, stablecoin-attestation, price-impact

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

A range beside a trendOne chart swinging between a flat floor and ceiling, another stepping upwards inside a pair of sloping lines.Range-boundresistancesupportprice bounces between two levelsTrendingthe trend channelhigher highs and higher lowsA range has two flat edges; a trend has two sloping ones.
Range versus trend. On the left price keeps bouncing between the same floor and ceiling, which is a range. On the right each high and each low is higher than the last, inside a pair of sloping lines called a channel.

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