Redemptions
Peg Mechanisms
Nexus’ USDOX stablecoin maintains a close correlation with USD due to its redeemability for collateral at face value. This means 1 USDOX can always be exchanged for $1 worth of collateral from the Nexus CDP Vault. Additionally, the minimum collateralization ratio of 150% enforces a price floor and ceiling through arbitrage opportunities. These mechanisms, classified as "hard peg mechanisms", ensure stability through explicit economic operations.
Beyond these, Nexus also employs “soft peg mechanisms” to maintain USDOX’s parity with USD. One such mechanism is market consensus as a Schelling point—since the Nexus ecosystem inherently treats USDOX as equivalent to USD, maintaining parity is the natural equilibrium state of the system.
Another key stabilizing factor is the minting fee on new USDOX debt. When redemptions increase (indicating USDOX is trading below $1), the base rate automatically rises. This discourages excessive borrowing, preventing additional USDOX from entering circulation and further suppressing the price.
Redemptions
Redemption is the process of exchanging USDOX for collateral at face value, assuming 1 USDOX = $1. For example, if a user redeems X USDOX, they receive X dollars' worth of collateral from the Nexus CDP Vault.
Users can redeem USDOX for any supported collateral within the Nexus ecosystem at any time. However, a redemption fee may apply to the transaction.
Example:
If the redemption fee is 1%, and the price of tokenA is $500, a redemption of 100 USDOX would yield:
0.2 tokenA before fees
0.198 tokenA after applying the 1% redemption fee (0.002 tokenA deduction)
The redeemed amount impacts the baseRate, which dynamically adjusts the redemption fee, particularly for large transactions.
Redemption Fee Calculation
Under normal conditions, the redemption fee is determined using the formula:
(baseRate + 0.5%) * CollateralDrawnBase Rate Calculation
The baseRate is a dynamic variable managed within Nexus' Vault Manager. It increases with each redemption and gradually decays over time if no redemptions or new USDOX issuances (fee events) occur.
Each redemption triggers the following:
Decay of the baseRate in proportion to the time since the last fee event.
An increase in baseRate relative to the fraction of the total USDOX supply redeemed.
Redemption Impact on Vaults
When a Nexus CDP Vault is redeemed against, it does not incur a net loss. However, the vault’s collateral exposure decreases, and its collateral ratio improves post-redemption.
How to Prevent Redemptions on Your Vault
The best way to avoid redemptions is to maintain a high collateral ratio compared to other vaults in the system.
Redemptions target the riskiest vaults first—those with the lowest collateralization ratios.
If your vault is well-collateralized, it is less likely to be subject to redemptions.
Last updated