Redemption mechanism

The process is direct. The holder, often institutional or authorized, hands tokens to the issuer, which burns them and delivers fiat from reserves. The relevant parameters are the minimum redemption amount, fees, the time window, and eligibility, since some issuers redeem directly only to authorized partners while retail access runs through exchanges. As long as redemption is credible and at nominal value, any price deviation creates an arbitrage opportunity that corrects it. That is why the mechanism's robustness depends on the quality of the reserves backing it.

It is the piece that sustains the peg and the main defense against a depeg, and it is an explicit legal requirement in current frameworks. In the United States, the GENIUS Act, signed in July 2025, mandates redemption at par, clear procedures for timely redemption, and public disclosure of the redemption policy. In the European Union, MiCA requires e-money tokens and asset-referenced tokens to grant holders a permanent redemption right, with redemption plans filed with the competent authority and, for EMT, redemption at nominal value.

Circle redeems USDC at par to authorized clients through its Circle Mint accounts, and Paxos redeems PYUSD and USDP. In crypto-backed models, redemption is equivalent to closing the vault and recovering the collateral by paying the debt plus the stability fee, as happens with DAI and USDS from the Sky protocol.