Skip to main content

Documentation Index

Fetch the complete documentation index at: https://docs.monolith.market/llms.txt

Use this file to discover all available pages before exploring further.

​
Redemptions

​
Overview

Redemptions let Coin holders exit into underlying collateral at the oracle price, less a small redemption fee. They provide reliable exit liquidity and a price floor mechanism when secondary markets are thin or dislocated.
  • Exit liquidity: Any holder can redeem Coin for collateral directly from the instance, regardless of DEX liquidity.
  • Partial redeemability by design: Only the portion of the system backed by borrowers who opted into free debt is redeemable. Paid‑debt positions are not touched. See the distinction in Paid vs Free Debt.

​
How redemptions work (high‑level)

  1. A user submits a redeemable borrower address to redeem Coin from.
  2. The instance values the Coin at the oracle price and applies a small redemption fee.
  3. The protocol burns the redeemed Coin and transfers collateral to the redeemer.
  4. Global accounting updates:
    • Total free debt decreases by the redeemed amount.
    • Collateral and debt is removed from the redeemable borrower.
In effect, redemptions repay free debt with the redeemer’s Coin, while seizing collateral of equal value (minus fee) from the free‑debt borrower.

​
Why only part of the system is redeemable

Monolith is intentionally not “fully redeemable.” Borrowers can choose paid debt (non‑redeemable) or free debt (redeemable). This creates a robust, opt‑in redemption buffer without forcing all borrowers to accept redemption risk. It makes the system more flexible and capital‑efficient while preserving a credible exit for holders.

​
Interest‑rate controller and redemption liquidity

The protocol targets a healthy share of free debt to back redemptions. When redemption liquidity is low (free‑debt share below target), the borrow rate rises over time, nudging borrowers to switch to free or repay paid debt. When free‑debt share is abundant, the borrow rate decays toward a low floor, encouraging paid borrowing. This feedback loop keeps redemption capacity available without human intervention. Learn more in Interest Rate Controller.

​
Examples: impact on free‑debt borrowers

  • Proportional adjustment
    • Setup: Two free‑debt borrowers, Alice owes 600, Bob owes 400. Total free debt = 1,000.
    • Redemption: A user redeems 100 Coin from Bob at the oracle price (ignoring fees for simplicity).
    • Result: Total free debt becomes 900. Bob’s debt drops to 300 (−100) while Alice’s remains unchanged. Collateral is seized pro‑rata from Bob to fund the redeemer.
  • Effect of the redemption fee
    • Setup: Same as above, with a 0.3% redemption fee.
    • Redemption: User redeems 100 Coin from Bob; The user receive slightly less collateral than the fair price according to the oracle.
    • Result: The collateral shortfall (the fee) remains in the system, benefiting Bob.

​
What this means for users

  • Coin holders: You can always find exit liquidity via redemption, subject to current redeemable capacity and fees.
  • Borrowers in free mode: You pay no interest, but your collateral is subject to pro‑rata redemptions. Your debt typically falls during active redemption periods.
  • Borrowers in paid mode: You pay interest but are insulated from redemptions.