Redeems is the key mechanism to keep the $PUSD peg to USD. When the market price of $PUSD drops under $1, the arbitragers can do the redeem with $PUSD worth $1 from the most risk PiggyBanks on the protocol(the most risk PiggyBank is the lowest CR in the protocol). This will reduce the $PUSD supply in the market and make the $PUSD price go back to $1.
Here is more detailed explanation of the redemption process:
A redemption is the process of exchanging $PUSD for $BNB at face value, as if 1 $PUSD is exactly worth $1. That is, for x $PUSD you get x Dollars worth of $BNB in return.
Users can redeem their $PUSD for $BNB at any time without limitations. However, a redemption fee might be charged on the redeemed amount.
For example, if the current redemption fee is 1%, the price of $BNB is $500 and you redeem 100 $PUSD, you would get 0.198 $BNB (0.2 $BNB minus a redemption fee of 0.002 $BNB).
Note that the redeemed amount is taken into account for calculating the base rate and might have an impact on the redemption fee, especially if the amount is large.
The redemption can be done by Bot or manual from our dashboard. Here is the process of the manual redeem.
Step1: Click the "Redeem" on the sidebar menu. You will find the redeem page and fill in the $PUSD amount you want to redeem.
Step2: Confirm all the information, And the protocol will redeem from the most risk PiggyBank.
No, redemptions are a completely separate mechanism. All one has to do to pay back their debt is adjust their PiggyBank's debt and collateral.
Under normal operation, the redemption fee is given by the formula baseRate * BNB drawn amount
Redemption fees are based on the baseRate state variable in Piggy, which is dynamically updated. The base rate increases with each redemption, and decays according to time passed since the last fee event - i.e. the last redemption or issuance of $PUSD.
Upon each redemption: BaseRate is decayed based on time passed since the last fee event base rate is incremented by an amount proportional to the fraction of the total $PUSD supply that was redeemed. The redemption fee is given by baseRate * BNB drawn amount
If your PiggyBank is redeemed against, you do not incur a net loss. However, you will lose some of your $BNB exposure. Your PiggyBank's collateral ratio will also improve after a redemption.
The best way to avoid being redeemed against is by maintaining a high collateral ratio relative to the rest of the PiggyBank's in the system. Remember: The riskiest PiggyBanks (i.e. lowest collateralized PiggyBanks) are first in line when a redemption takes place.