Skip to content

FAssets Redemption#

Any holder of FAssets can redeem their FAssets for the underlying original asset. To do so, these holders, known as redeemers, send FAssets to the Asset Manager smart contract, and the redeemed amount is paid with the underlying asset from an agent's address.

Redemption Process#

This is the summary of the redemption process:

Minting

Minting.
  1. The redeemer starts the redemption for a whole number of lots by issuing a request to the Asset Manager smart contract.

    The FAssets system chooses one or more redemption tickets from the front of the FIFO redemption queue. The number of chosen redemption tickets is capped to avoid high gas consumption. If the redemption amount requires too many tickets, only a partial redemption is done.

  2. The system burns FAssets from the redeemer’s account in the amount of the total of the selected redemption tickets. If the redeemer's account does not contain enough FAssets, the redemption fails immediately.

  3. Each chosen ticket belongs to an agent. For every agent participating in the redemption, the system issues an event with the following redemption payment information:

    • Redeemer’s underlying address.

      Agents can use the State Connector to ensure the validity of this address. Otherwise, malicious redeemers could provide an address that systematically blocks payments and exploit the redeeming process to their advantage (See Redemption Payment Failure below).

    • Amount to pay minus the fee that was already subtracted.

    • A payment reference. This payment reference is different for each agent and each redemption.
    • The last underlying block and the last underlying timestamp to complete the payment.
  4. Every agent pays the redeemer on the underlying chain and includes the payment reference in the memo field of the payment transaction.

    Agents can pay the redemption from any address they control on the underlying chain. It does not need to be the same address where they receive minting payments.

  5. After the payment is finalized, the agent uses the State Connector to prove the payment and obtain a payment proof.

  6. After the payment proof is presented to the FAssets system, the agent's vault collateral and pool collateral that were backing those FAssets are released.

    After the collateral is released, it can either back the minting of more FAssets or be withdrawn.

Redemption-Payment Failure#

Agents have a limited time to pay the redeemer on the underlying chain. The amount of time is defined by the last block and the last timestamp on the underlying chain. If the payment is not made in time, the redeemer has to prove nonpayment to be compensated. After the redeemer presents the nonpayment proof, he is paid with the agent's collateral plus a premium. The premium is intended to encourage the agent to complete redemptions by paying with the underlying asset instead of collateral.

If a payment fails and the failed transaction is recorded on the underlying chain, the agent must submit a proof of failed payment. In this way, the gas costs of the failed transaction can be accounted for by the FAssets system. If the transaction was not recorded, then no gas was spent and reporting is not necessary.

If the agent does not report the failed payment in time, anyone can report the failed payment and receive a reward from the agent's vault.

Blocked Payments

When payment fails because of the redeemer, the agent can obtain a proof of the failed payment from the State Connector and present it to the FAssets system. The agent's obligation is then fulfilled, and he can keep both the collateral and the underlying.

Two different proofs can be used:

  • Proof of invalid address, due to a wrong syntax or checksum, for example.
  • Proof of blocked payment: Even if the address is valid, it might contain a contract that blocks the payment. This can only happen on underlying networks supporting smart contracts.

    The agent must still try to pay and, if the payment is blocked, the agent can request this proof from the State Connector and present it to the FAssets system.

During step 4 above, if any agent does not to pay on the underlying chain, the redeemer completes the following procedure separately for each nonpaying agent:

  1. The redeemer obtains a proof of nonpayment from the State Connector.
  2. The redeemer presents the nonpayment proofs to the FAssets system, which triggers a redemption failure.
  3. The redeemer is paid with collateral, according to the current price plus a premium.
  4. FAssets are overcollateralized, so, even after paying the redeemer with a premium, a remainder is released. This remainder is derived by the system-wide collateral ratio settings specified by governance.
  5. The underlying assets backing the redeemed FAssets are marked as free and can be withdrawn by the agent later.

Edge Cases#

  • Unresponsive redeemer: After a redemption nonpayment, the redeemer might not report the failure for some reason. In this case, the agent can present a nonpayment proof, and the redeemer receives collateral plus a premium. After this operation, the underlying backing collateral and the remaining local collateral are released.
  • Unresponsive agent: After a successful payment, the agent might not present the payment proof. Because the agent has already paid, the redeemer is not affected. However, the system still requires the payment proof to correctly track the agent's balance on the underlying chain. After enough time for the agent to present the proof has elapsed, anyone can present the payment proof and receive collateral from the agent’s vault.
  • Expired proof: Proofs provided by the State Connector are available for only 24 hours, approximately. If neither the redeemer nor the agent presents the proof of payment or nonpayment within 24 hours, the regular redeeming process cannot continue, and the agent's collateral could be locked indefinitely.

    The procedure to recover this collateral is the same as the procedure in the minting case.

Redemption Fee#

The redemption fee is the amount of the underlying asset that the agent can keep for doing the redemption. This fee is meant only to cover the agent’s transaction fee on the underlying chain, so it is not shared with the collateral pool. The fee percentage is defined by governance, is the same for all agents, and is typically smaller than the minting fee.

Governance calculates the percentage so that the fee to redeem 1 lot pays for a typical transaction fee on the underlying chain. Therefore, when larger amounts on a single address are redeemed, the agent accrues some extra fees because the underlying fee for small and large transactions is the same. However, when underlying fees are very high, the agent might still lose funds when a redemption for a small amount, such as 1 lot, is made. If this situation occurs frequently, governance will increase the redemption-fee percentage.

Self-redemption#

Agents can also act as users and redeem FAssets from their own vaults. This process is called self-redemption or self-closing, and it is simplified because payment on the underlying chain is not required.

As shown in the following process, agents can self-redeem for any reason, including to stop liquidations because it reduces the amount of FAssets the agent is backing.

  1. An agent sends FAssets to their account.
  2. FAssets are burned.
  3. The collateral that was backing those assets is released.
  4. The underlying collateral is released and can be withdrawn from the underlying address later.

The self-redeemed amount is not limited to a whole number of lots and can be less than 1 lot, which makes self-closing ideal for redeeming an agent's dust.


Last update: 2024-03-01