Redemption fee is in μtokens and scales with the Reserve Ratio. Normal Vault Redemptions becomes unavailable when Reserve Ratio of a collection is below 20% and only way to redeem will be by bidding on a specific NFT.
Purpose and Reasoning
Dynamic Redemption Fees, levied in μtokens, are a feature of the Floor Protocol designed to regulate redemptions from the Vault and mitigate the risk of its exhaustion. The introduction of these fees serves several key purposes:
Maintaining Stability: The dynamic fees act as a financial deterrent to slow down mass redemptions, particularly when the Reserve Ratio is low. This ensures the protocol remains stable and robust.
Risk Mitigation: The fee structure is crucial for preventing a rapid depletion of the Vault, reducing the risk of its exhaustion.
Incentive for Protocol Maintenance: When the Reserve Ratio drops below a critical level of 20%, the normal vault redemptions will be unavailable. This provides a strong financial incentive for the Flooring Protocol team to purchase NFTs from external marketplaces and refill the Vault, thereby stabilizing the system.
The table below details the Dynamic Redemption Fees based on the Reserve Ratio: