Peg

Peg mechanisms

fixUSD maintains a close association with usd due to its redeemability for collaterals at face value (i.e., 1 fixUSD can be exchanged for $1 worth of a collateral of choice), and the mandated minimum collateral ratio of 120%. These conditions create a price floor and ceiling, respectively, through arbitrage opportunities. These are known as "hard peg mechanisms" as they rely on explicit operations.

However, fixUSD also utilizes more indirect methods to maintain usd parity — referred to as "soft peg mechanisms". One such mechanism is parity as a Schelling point. The protocol treats fixUSD as equivalent to usd, parity between the two is an inherent equilibrium state of the system.

Another mechanism is the minting fee on new debts. As redemptions rise (indicating fixUSD is below $1), the base rate also increases — thus making borrowing less appealing, which prevents new mkUSD from flooding the market and driving the price below $1.

Redemptions

A redemption refers to the act of exchanging fixUSD for collateral at face value, assuming 1 fixUSD is exactly equal to $1.

Users are free to redeem their fixUSD for any collateral without restrictions. However, a redemption fee may be imposed on the redeemed amount.

Note that the redeemed amount contributes to the calculation of the baseRate and may influence the redemption fee, particularly for large amounts.

Redemptions effect on CDPs

If a CDP is redeemed against, it does not suffer a net loss. However, its collateral exposure will decrease. The CDP's collateral ratio will also improve after a redemption.

The most effective way to prevent redemption against your CDP is to maintain a high collateral ratio relative to the rest of the CDPs in the system. Keep in mind: The riskiest CDPs (i.e., the least collateralized CDPs) are targeted first when a redemption occurs.