HeadStarter

The HLiquity protocol launches on Hedera mainnet on June 5th and has its public IDO on June 4th, on the <a href="https://app.headstarter.org/projects" rel="noopener noreferrer nofollow">HeadStarter</a> launchpad, so let’s welcome it in stride by putting our thinking caps on and understanding better the protocol’s mechanisms:<h2 id="header-0">⚖️$HCHF Price Stability &amp; Redemptions</h2> Let&#39;s dig in!&#x1f969;&#x1f447;<img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/b415c1a51e6842dba123010082f2a79f.png" />The stability of $HCHF, the Hedera Swiss FrancOne mechanism that ensures the stability of $HCHF, the Hedera Swiss Franc stablecoin, is redemption, a unique feature of the HLiquity protocol. It allows any holder of $HCHF to exchange their tokens for $HBAR at face value. This mechanism is crucial in maintaining the peg of HCHF to the Swiss Franc.If the market price of HCHF falls below its peg, users can buy HCHF cheaply on the market and redeem it for HBAR at face value, making a profit. This arbitrage opportunity incentivizes market participants to restore the peg.The Redemption MechanismWhen a user initiates a redemption, they specify the amount of $HCHF they wish to redeem. The protocol selects the Trove with the lowest collateral ratio and uses its collateral to fulfil the redemption. The redeemed $HCHF is burned, and the corresponding amount of $HBAR is transferred to the redeemer.When a redemption occurs, the debt of the affected Trove decreases, and an equivalent amount of its collateral is claimed. This process continues until the entire redemption request is filled.The Redemption FeeA redemption fee is charged on each redemption to compensate for the risk taken by the Trove owners. The fee is dynamic and depends on the amount of $HCHF being redeemed relative to the total $HCHF supply. The fee is added to the redeemed $HCHF and is paid in $HBAR.ConclusionThe redemption mechanism is a powerful tool that ensures the stability of the $HCHF peg. We hope that by understanding how redemptions work and their impact on Troves, you can make informed decisions. If you want to be an OG in this project, you may still apply to the allowlist of people able to participate in the IDO <a href="https://app.headstarter.org/projects/" rel="noopener noreferrer nofollow">https://app.headstarter.org/projects/</a>This is in no way financial advice. Always DYOR.

The Stability of Hedera's Swiss Franc $HCHF and the Redemption Mechanism of HLiquity

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