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: 0.0%

   • 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.