Fees

Redemption Fee

The fee is derived from a Base Rate, which increases with redemptions and decays over time:

1. Base Rate and Decay:

   • The base rate starts at zero. Every time someone redeems BSD, this base rate goes up.

   • When redemptions cease, the Base Rate decays exponentially over time based on blocks elapsed since the last redemption. The decay factor is pre-calculated for different time intervals, effectively reducing the rate to zero over 72 hours of inactivity.

2. Ratio and Scaling:

   • When you redeem BSD, the redemption amount is compared to the total BSD supply.

   • The resulting ratio is then scaled by 0.5 and added to the base rate, bumping the base rate up proportionate to the size of recent redemption(s).

3. Final Redemption Fee:

   • The updated base rate determines the fee.

   • Redemption fee minimum: 0.5%

This fee is assessed in sBTC and subtracted from the redemption amount. The fee will go to the vault(s) consumed in the redemption.

Borrow Fee

1. Base Rate and Decay:

   • Base rate decay works exactly the same as redemption fee.

   • Critically, borrowing does not increase the base rate, only redemptions.

2. Final Borrow Fee:

   • The current decayed base rate determines the fee.

   • Borrow fee minimum: 0.5%

   • Borrow fee maximum: 5%

The fee is assessed in BSD and added to the vault debt.

Note: There are no fees for repaying debt.

If the protocol is in recovery mode the borrow fee is always zero to encourage new, highly collateralized, debt creation.

Percentages and calculations

Based contracts use fixed-point math with 8 decimals of precision (1 = 100,000,000) to avoid floating-point errors. Percentages are scaled: 0.5% = 500,000; 100% = 100,000,000.

For example, a 0.5% fee on 1000 BSD is: (1000 * 10^8 * 500,000) / 100,000,000 = fee

This ensures consistent, precise calculations but results may differ slightly from float-based math.