Redemptions
Why do we Redeem?
Why Do Redemptions Exist in Orki?
Redemptions play a critical role in maintaining USDK’s peg to the US Dollar by creating a decentralized price floor around $1. This happens trustlessly without reliance on centralized entities or custodians.
When USDK trades below $1, anyone can redeem USDK for collateral at face value, i.e., 1 USDK = $1 worth of collateral (such as swETH, rswETH, etc.). The system enables users to swap their discounted USDK for protocol-held assets, enforcing the peg in a purely on-chain way.
How Redemptions Work
Redemptions are processed against Orki Vaults (borrowers) starting from those who’ve set the lowest interest rate. The redeemer sends USDK to the protocol and receives a collateral mix back, minus a redemption fee.
The system decides which collateral to use (swETH, rswETH, etc.) based on the current backing distribution in the Stability Pool the more undercollateralized a pool, the more redemption pressure it absorbs.
Example:
You redeem 5,000 USDK.
Protocol pulls that value from Vaults with the lowest rates.
You receive ~5,000 worth of a mix of swETH, rswETH (minus the fee).
Those Vaults now owe less USDK and hold less collateral.
LIFO Policy
If two Vaults share the same interest rate, the most recently created or updated one is hit first — Last In, First Out (LIFO).
When Do Redemptions Happen?
Redemptions can technically happen at any time but are only profitable when USDK < $1 (minus redemption fees). This naturally discourages redemptions unless the peg slips, creating a self-correcting mechanism.
Who Can Redeem?
Anyone. Any wallet holding USDK can redeem it. In practice, arbitrage bots will dominate this activity for efficiency and speed.
What Happens If Your Vault Is Redeemed?
Think of it as someone else repaying your debt in exchange for some of your collateral.
You lose collateral, but your USDK debt is proportionally reduced. Since USDK is trading under $1 when redemptions happen, you're being relieved of more debt than the market would value otherwise. Plus, you keep the redemption fee portion in your Vault, slightly improving your position in USD terms.
Example:
Before: 10 swETH collateral, 20,000 USDK debt
After: 5.025 swETH collateral, 5,000 USDK debt
You retain the 0.025 swETH redemption fee.
What If My Debt Falls Below Minimum (e.g. 2,000 USDK)?
If your debt hits zero, your Vault enters a dormant mode. You can either withdraw your remaining collateral or borrow again.
If your debt drops below the minimum but not zero, your Vault stays open. You can top up to reactivate or fully close.
Multi-Collateral Redemptions
Unlike Liquity’s single-asset model, Orki uses multi-collateral redemptions. The protocol splits the redeemed amount based on economic safety riskier collateral pools (with smaller Stability Pools vs debt) absorb more redemptions.
Example split (based on outside debt):
100 USDK outside debt in swETH
50 USDK in rswETH
100 USDK in oswETH
Redemption result:
40% swETH
20% rswETH
40% oswETH
Redemption Fee
The fee is dynamically adjusted based on time and redemption volume. It’s calculated as:
Fee=min(0.5%+baseRate,100%)\text{Fee} = \min(0.5\% + \text{baseRate}, 100\%)Fee=min(0.5%+baseRate,100%)
baseRate increases with each redemption.
baseRate decays over time (half-life ~6h).
The fee stays within the system (unlike Liquity V1 where it went to stakers).
Protecting Your Vault
Your Vault’s interest rate determines how soon you're hit during redemptions. Higher rates = safer. You can check the “USDK before you” metric on any Orki frontend (e.g. “41M USDK before you”) to estimate risk.
Also monitor:
Recent redemption volume (e.g. 200k USDK last week = safer than 15M)
Price of USDK (redemptions only happen if < $1)
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