# Redemptions and pSTABLE Price Stability **How does pSTABLE closely follow the price of USD?** The ability to redeem pSTABLE for pDAI at face value (i.e., 1 pSTABLE for $1 of pDAI) and the minimum collateral ratio of 110% create a price floor and price ceiling (respectively) through arbitrage opportunities. These are referred to as "hard peg mechanisms" since they are based on direct processes. pSTABLE also benefits from less direct mechanisms for USD parity — called "soft peg mechanisms." One of these mechanisms is parity as a Schelling point. Since pStability Protocol treats pSTABLE as being equal to USD, parity between the two is an implied equilibrium state of the protocol. Another of these mechanisms is the borrowing fee on new debts. As redemptions increase (implying pSTABLE is below $1), so too does the baseRate — making borrowing less attractive, which keeps new pSTABLE from hitting the market and driving the price below $1. *** **What are redemptions?** A redemption is the process of exchanging pSTABLE for pDAI at face value, as if 1 pSTABLE is exactly worth $1. That is, for x pSTABLE, you get x Dollars worth of pDAI in return. Users can redeem their pSTABLE for pDAI at any time without limitations. However, a redemption fee might be charged on the redeemed amount. Note that the redeemed amount is taken into account for calculating the baseRate and might have an impact on the redemption fee, especially if the amount is large. *** **Is a redemption the same as paying back my debt?** No, redemptions are a completely separate mechanism. To pay back your debt, you simply adjust your Vault's debt and collateral. *** **How is the redemption fee calculated?** Under normal operation, the redemption fee is given by the formula: **(baseRate + 0.5%) \* pDAIdrawn** *** **How is the baseRate calculated?** Redemption fees are based on the baseRate state variable in pStability Protocol, which is dynamically updated. The baseRate increases with each redemption and decays according to the time passed since the last fee event — i.e., the last redemption or issuance of pSTABLE. Upon each redemption: 1. baseRate is decayed based on time passed since the last fee event. 2. baseRate is incremented by an amount proportional to the fraction of the total pSTABLE supply that was redeemed. The redemption fee is given by: **(baseRate + 0.5%) \* pDAIdrawn** *** **As a borrower, do I lose money if I'm redeemed against?** If your Vault is redeemed against, you do not incur a net loss. However, you will lose some of your pDAI exposure. Your Vault's collateral ratio will also improve after a redemption. *** **How can I avoid being redeemed against?** The best way to avoid being redeemed against is by maintaining a high collateral ratio relative to the rest of the Vaults in the system. Remember: The riskiest Vaults (i.e., lowest collateralized Vaults) are first in line when a redemption takes place. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://pstability-1.gitbook.io/pstability-docs/redemptions-and-pstable-price-stability.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.