Redemptions

At any point in time, ZUSD holders may redeem their ZUSD tokens for $1 worth of collateral at a ratio of 1:1. The user will receive the collateral, and the Citizen protocol will receive and burn the ZUSD token, removing it from circulation. This creates a price floor and an arbitrage mechanism to maintain a peg to the $USD. For example, should ZUSD be trading at $.90, the user is incentivized to purchase ZUSD, redeem it for a $1 worth of collateral, and sell the collateral, taking home a $.10 profit. This arbitrage mechanism incentivizes market participants to maintain a $1 price floor for ZUSD. So long as Citizen Banks maintain a CR above 110%, and riskier banks get liquidated in an efficient manner, then ZUSD will always be fully collateralized and redeemable for $1 worth of collateral.

Redemptions draw on the collateral of existing Citizens Banks. The protocol will preferentially draw on the collateral of the riskiest Banks, which are the Banks with the lowest collateralization ratio, and are closest to liquidation. If a Bank owner faces a redemption on their collateral, their ZUSD debt will go down in accordance with the reduction of their collateral. Effectively, the redeemers are paying down the debt of the riskiest Bank owners, in exchange for the collateral. Users may not specify which collateral-type they will receive when they redeem their ZUSD.

Users pay a dynamic fee for initiating a redemption. This fee varies algorithmically between .5% and 5%, and is taken out as a quantity of the collateral. Fees from redemptions accrue to the DAO treasury as revenue.