GlossaryIntermediate
Redemption Mechanism
The process that lets a stablecoin holder exchange it back for the underlying asset or reserve at its target value.
A redemption mechanism is the process that lets a stablecoin holder exchange it back for the underlying reserve asset (or an equivalent value) at the stablecoin's target price, which is what gives peg arbitrage a reliable way to correct price drift.
How fast, reliable, and widely accessible a stablecoin's redemption mechanism is has a direct effect on how resilient its peg is under stress.
Examples
- A fast, reliable redemption mechanism helps a stablecoin recover quickly from a temporary depeg.
- Restricted or delayed redemption access can make a stablecoin's peg more fragile under pressure.