Redemption Mode
What Are Redemptions?
Redemptions are a key mechanism that helps maintain WEIS’s peg to $1 without relying on centralized assets or third parties.
A redemption allows a user to swap WEIS for SUI at face value (1 WEIS = $1 worth of SUI). This means that when the price of WEIS falls below $1, arbitrageurs can redeem their WEIS for SUI, reducing WEIS supply and helping restore its peg.
How It Works:
The redeemer sends WEIS to the protocol.
In return, they receive SUI minus a small redemption fee.
Redemptions start with borrowers with the lowest collateral ratio.
This mechanism ensures market-driven stability while protecting the peg of WEIS.
How Do Redemptions Affect Borrowers?
When a redemption occurs, a portion of a borrower's collateral is used to process the redemption, but their loan balance is also reduced accordingly. This means that even if part of their SUI is redeemed, they owe less WEIS than before.
Example
Before Redemption: 10,000 SUI collateral, 5,000 WEIS borrowed.
After Redemption: 9,500 SUI collateral, 4,750 WEIS borrowed.
Redemption Fee: 2.5% (borrower keeps a small portion of their SUI).
💡 Borrowers do not lose funds in USD terms—redemptions simply adjust the collateral and debt proportionally.
Redemption Fees
A small redemption fee is applied, ensuring the system remains balanced. This fee is based on the amount of WEIS redeemed and recent redemption activity.
Fees start at 0.5% and decay over time if redemptions slow down.
Unlike other systems, borrowers keep the redemption fee, making redemptions fairer for all users.
💡 If WEIS is trading at or above $1, redemptions are unlikely to occur.
How to Protect Yourself from Redemptions
The risk of being redeemed depends on:
Your Interest Rate – Borrowers with the lowest rates are redeemed first.
The Price of WEIS – If WEIS is above $1, redemptions are unprofitable and won’t happen.
To reduce your risk:
Set a higher interest rate – This places you further down in the redemption queue.
Monitor redemption activity – Stay informed on the amount of WEIS being redeemed.
To Summarize
Redemptions keep WEIS stable and are only likely when WEIS falls below $1.
Borrowers repaid through redemptions do not lose USD value, only their debt and collateral adjust proportionally.
By understanding these mechanics, users can strategically manage borrowing and minimize redemption risks.
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