Redemptions Model

The Keiko Protocol's Vault redemption model ensures that KEI stablecoin maintains its peg by allowing 1:1 redemption of KEI for the collateral held in Vaults, albeit with an associated fee. This feature is crucial for maintaining the price stability of KEI and providing a fail-safe mechanism for holders.

Redemption Mechanism

1:1 Redemption: Anyone can redeem KEI 1:1 for the collateral in any Vault, subject to a transaction fee. This mechanism is designed to ensure that KEI never falls below its target price.

Calculation of Redemption Priority

• Nominal Collateral Ratio (NCR): This is calculated as the Collateral value divided by the Debt value for each vault.

$$NCR = Collateral / Debt$$

• Minimum Collateral Ratio (MCR): Each vault has an MCR defined, which is critical for determining its financial health.

• MCR Factor: A parameter used to tweak the weight of the MCR Component.

• MCR Component: This is derived by multiplying the vault’s MCR by the mcrFactor.

$$MCR Component = mcrFactor * MCR$$

Adjusted Redemption Score (ARS)

$$ARS = NCR + mcrComponent$$

• The ARS for each vault is calculated by adding the Nominal Collateral Ratio (NCR) to the MCR Component.

• The ARS determines the order in which vaults are redeemed; the vault with the lowest ARS is given priority in redemption.

• Vault owners can increse their ARS by increasing their NCR and their MCR