Tokens & Assets
Redemption
Token Redemption
Exchanging a token for its underlying asset or collateral
Definition
Redemption means exchanging a token for its underlying asset or collateral. In DeFi, the concept matters because it affects risk, return, liquidity, governance, or execution assumptions.
Example
A user redeems 1000 LUSD through Liquity to receive ETH collateral worth roughly 1000 USD.
What to check
Inspect backing, redemption paths, liquidity, issuer assumptions, and stressed-market behavior. The main checks are: Redemption delays; Insufficient liquidity; Protocol fees or haircuts.
Risks to Consider
- Redemption delays
- Insufficient liquidity
- Protocol fees or haircuts
Common Questions
What does Redemption mean in DeFi?
Redemption means exchanging a token for its underlying asset or collateral.
How is Redemption used in practice?
A practical example: A user redeems 1000 LUSD through Liquity to receive ETH collateral worth roughly 1000 USD.
What should I check before relying on Redemption?
Inspect backing, redemption paths, liquidity, issuer assumptions, and stressed-market behavior. The main checks are: Redemption delays; Insufficient liquidity; Protocol fees or haircuts.