Redemptions let Coin holders exit into underlying collateral at the oracle price, less a small redemption fee. They provide reliable exit liquidity and a price floor mechanism when secondary markets are thin or dislocated.
Exit liquidity: Any holder can redeem Coin for collateral directly from the instance, regardless of DEX liquidity.
Partial redeemability by design: Only the portion of the system backed by borrowers who opted into free debt is redeemable. Paid‑debt positions are not touched. See the distinction in Paid vs Free Debt.
Monolith is intentionally not “fully redeemable.” Borrowers can choose paid debt (non‑redeemable) or free debt (redeemable). This creates a robust, opt‑in redemption buffer without forcing all borrowers to accept redemption risk. It makes the system more flexible and capital‑efficient while preserving a credible exit for holders.
The protocol targets a healthy share of free debt to back redemptions. When redemption liquidity is low (free‑debt share below target), the borrow rate rises over time, nudging borrowers to switch to free or repay paid debt. When free‑debt share is abundant, the borrow rate decays toward a low floor, encouraging paid borrowing. This feedback loop keeps redemption capacity available without human intervention. Learn more in Interest Rate Controller.
Setup: Two free‑debt borrowers, Alice owes 600, Bob owes 400. Total free debt = 1,000.
Redemption: A user redeems 100 Coin at the oracle price (ignoring fees for simplicity).
Result: Total free debt becomes 900. Alice’s computed debt drops to 540 (−60), Bob’s to 360 (−40). Collateral is seized pro‑rata from both to fund the redeemer.
Effect of the redemption fee
Setup: Same as above, with a 0.3% redemption fee.
Redemption: User redeems 100 Coin; they receive slightly less collateral than the theoretical amount.
Result: The collateral shortfall (the fee) remains in the system, benefiting remaining free‑debt borrowers collectively (their net equity is marginally higher than with a zero‑fee redemption).
Paid vs free isolation
Setup: Carol holds a paid‑debt position; Dave holds a free‑debt position of equal size.
Redemption: A user redeems 50 Coin.
Result: Only Dave’s side is affected (his debt decreases and collateral is seized pro‑rata). Carol’s paid‑debt position is untouched.
Coin holders: You can always find exit liquidity via redemption, subject to current redeemable capacity and fees.
Borrowers in free mode: You pay no interest, but your collateral is subject to pro‑rata redemptions. Your debt typically falls during active redemption periods.
Borrowers in paid mode: You pay interest but are insulated from redemptions.
