Redemptions & Price Stability
BUCK aligns with the USD via "hard" and "soft" peg mechanisms. The "hard" peg is due to the redeemable nature of BUCK for SUI and a minimum collateral ratio of 110%. The "soft" peg comes from BUCK's perceived value equalling USD, and a borrowing fee that rises as more BUCK is redeemed, reducing BUCK supply.
BUCK holders can redeem their SUI directly, exchanging BUCK for SUI at face value. Redemptions adjust the BUCK debt from Bottles and use their SUI collateral. During the redemption process, Bottles are redeemed in ascending order of their collateralization ratio. Redemptions can't occur when TCR < 110% or during the first 14 days after protocol deployment.
In most cases, partial redemptions occur, as the redeemed amount often doesn't match the total debt of Bottles. In full redemption, the Bottle's debt is absorbed entirely, its Liquidation Reserve is cancelled and the collateral surplus is sent to a pool.
The redemption mechanism creates a BUCK price floor, ensuring that its market price cannot fall below $1 USD.
No, redemptions are not the same as debt repayments. Anyone can initiate the redemption process, while only the borrower needs to repay the debt.
The redemption fee is calculated by the formula (baseRate + 0.5%) * SUI drawn.
Redemption fees are based on the baseRate state variable in Bucket Protocol, which is dynamically updated. The baseRate increases with each redemption, and decays according to time passed since the last fee event – i.e. the last redemption or issuance of BUCK.
Upon each redemption: baseRate is decayed based on time passed since the last fee event – baseRate is incremented by an amount proportional to the fraction of the total BUCK supply that was redeemed – the redemption fee is given by (baseRate + 0.5%) * SUI drawn
If your Bottle is redeemed against, you won't incur a net loss but lose some SUI exposure. The collateral ratio of your Bottle will improve.
To avoid being redeemed against, maintain a high collateral ratio. Riskiest Bottles are redeemed first.
Yes. The outside market may trade the stablecoin for less than the one USD equivalent. However, the redemption function decreases the likelihood, because anyone can redeem 1 BUCK for $1 USD of SUI at face value at any time.
BUCK minting is based on the SUI:USD price. It mints the necessary amount of BUCK requested, provided the chosen parameters meet the minimum loan requirements.