Liquity LUSD Redemption Guide: How to Close Trove and Retrieve ETH
Learn how to redeem LUSD stablecoin using Liquity protocol and retrieve ETH collateral, understanding the complete redemption process, fee mechanism, and risk management.
What is Liquity LUSD Redemption?
Liquity LUSD redemption refers to the process of repaying generated LUSD stablecoins to the protocol to retrieve previously deposited ETH collateral. Liquity supports partial redemption and full redemption (closing Trove), and redemption may require paying redemption fees.
Redemption Features
Key Advantages
- ✅ Zero Interest: No need to pay annual stability fees
- ✅ Flexible Redemption: Supports partial redemption and full redemption
- ✅ Fast Processing: On-chain instant processing, usually completed within minutes
- ✅ No KYC Required: Just connect wallet to operate
- ✅ Decentralized: Not dependent on a single entity
Important Notes
- ⚠️ Redemption Fees: May need to pay fees when redeeming (0.5-5%, market-determined)
- ⚠️ Need LUSD: Need to hold LUSD for debt repayment
- ⚠️ Gas Fees: Need to pay Ethereum network fees
- ⚠️ High Risk: Minimum collateral ratio 110%, very high risk
Pre-redemption Preparation
1. Check Trove Status
Information to Confirm:
- Current Collateral Ratio: Ensure sufficiently high to avoid triggering liquidation after redemption
- Outstanding Debt: Amount of LUSD to repay
- Available Collateral: Amount of ETH that can be withdrawn
- Redemption Fee Rate: Current market redemption fee rate
2. Prepare LUSD
Need to Prepare:
- Sufficient LUSD for debt repayment
- Additional LUSD for redemption fees (if any)
- Sufficient ETH to pay Gas fees
3. Understand Fee Mechanism
Fee Explanation:
- Redemption Fees: 0.5-5%, market-determined
- Gas Fees: Ethereum network fees
- Fee Fluctuations: Redemption fees fluctuate based on market demand
Fee Examples:
- Redeeming 10,000 LUSD, redemption fee rate 1%:
- Redemption fee: 100 LUSD
- Gas fees: Approximately $10-50
- Total fees: Approximately 100 LUSD + Gas
Redemption Process
Method 1: Partial Redemption
Step 1: Access Liquity Frontend
- Open your browser and visit Liquity Frontend
- Click "Connect Wallet" in the top right corner
- Connect wallet containing LUSD and ETH
Step 2: Select Your Trove
View Your Trove:
- View your Trove list in Liquity Frontend
- Select Trove to redeem
- View current status
Check Key Information:
- Current collateral ratio
- Outstanding LUSD amount
- Available ETH amount
- Liquidation price
- Current redemption fee rate
Step 3: Repay LUSD
Click "Adjust Trove":
- Select "Repay LUSD"
- Enter LUSD amount to repay
- View estimated redemption fees to pay (if any)
Approve LUSD Transfer (required for first time):
- If using LUSD for the first time, need to approve token transfer first
- Confirm approval transaction in wallet
- Wait for transaction confirmation
Confirm Repayment:
- View transaction details (Gas fees, estimated time, etc.)
- Confirm repayment amount
- Confirm redemption fees (if any)
- Confirm transaction in wallet
- Wait for on-chain confirmation (usually minutes)
Step 4: Withdraw ETH
Click "Adjust Trove":
- Select "Withdraw Collateral"
- Enter ETH amount to withdraw
- View collateral ratio after redemption
Confirm Collateral Ratio:
- Ensure collateral ratio remains sufficiently high after redemption (recommend 150%+)
- View liquidation price
- Understand risk alerts
Confirm Withdrawal:
- View transaction details
- Confirm transaction in wallet
- Wait for on-chain confirmation
- ETH will appear in your wallet
Method 2: Full Redemption (Close Trove)
Step 1: Access Liquity Frontend
- Open your browser and visit Liquity Frontend
- Connect wallet
- Select Trove to close
Step 2: Select Close Trove
Click "Close Trove":
- On Trove details page
- Click "Close Trove" button
View Close Details:
- LUSD amount to repay
- ETH amount that can be withdrawn
- Redemption fees (if any)
- Gas fee estimation
Step 3: Confirm Close
Review Transaction Details:
- LUSD amount to repay
- ETH amount to withdraw
- Redemption fees (if any)
- Gas fees
- Estimated processing time
Confirm Information:
- Confirm all information is correct
- Confirm fees are acceptable
- Confirm you want to close Trove
Confirm Transaction in Wallet:
- View transaction details
- Confirm Gas fees
- Confirm transaction in wallet
- Wait for on-chain confirmation
Step 4: Receive ETH
Wait for Transaction Confirmation:
- After transaction confirmation, ETH will appear in your wallet
- Trove will be closed
- Can confirm in Liquity Frontend
Confirm Balance:
- Check ETH balance in wallet
- Confirm balance is correct
- Can start using
Redemption Strategies
Partial Redemption
Applicable Scenarios:
- Need partial liquidity
- Want to keep some LUSD debt
- Reduce risk exposure
Operation Steps:
- Repay partial LUSD
- Withdraw partial ETH
- Keep Trove open
- Maintain sufficient collateral ratio
Full Redemption
Applicable Scenarios:
- No longer need LUSD
- Want to fully exit Liquity protocol
- Need full liquidity
Operation Steps:
- Repay all LUSD debt
- Withdraw all ETH collateral
- Close Trove
- Complete exit
Fee Explanation
Redemption Fees
What are Redemption Fees:
- One-time fees paid when redeeming
- Fee rate determined by market (0.5-5%)
- Not every redemption charges fees
How to Calculate:
- Redemption fee = Redemption amount × Fee rate
- Example: 10,000 LUSD, fee rate 1%, redemption fee = 100 LUSD
How Fee Rate is Determined:
- Determined by market supply and demand
- When redemption demand is high, fee rate may rise
- When redemption demand is low, fee rate may drop
When Fees are Charged:
- When redemption pool has sufficient LUSD, may not charge fees
- When redemption demand is high, may charge fees
- Fee rate determined by market
Gas Fees
Gas Fee Explanation:
- Gas fees required for each operation
- Fluctuates based on network congestion
- Usually $10-50 per operation (normal conditions)
- May be $50-200+ during network congestion
Redemption Operations:
- Partial redemption: 2 transactions (repay + withdraw)
- Full redemption: 1 transaction (close Trove)
- Total Gas fees: Approximately $10-100 (normal conditions)
Risk Management
1. Liquidation Risk (High Risk)
Risk Sources:
- Minimum collateral ratio is only 110%, buffer is very small
- Collateral ratio may decrease after redemption
- ETH price drops may trigger liquidation
Mitigation Strategies:
- Check collateral ratio before redemption
- Don't withdraw too much ETH
- Maintain 150%+ collateral ratio
- Be cautious during high market volatility
2. Redemption Fee Risk
Risk Sources:
- Fee rate determined by market, may be high (up to 5%)
- May need to pay fees when redeeming
- Fees may affect returns
Mitigation Strategies:
- Redeem when fee rate is low
- Understand fee mechanism
- Calculate total costs
- Consider batch redemption
3. Gas Fee Risk
Risk Sources:
- Network congestion causes high Gas
- Need multiple transactions (partial redemption)
- Gas may be high during urgent redemption
Mitigation Strategies:
- Choose times when network is less congested
- Use Gas optimization tools
- Reserve sufficient ETH to pay Gas
- Consider full redemption (single transaction)
Best Practices
High Risk Warning
- Minimum collateral ratio 110%, very high risk
- Need to maintain sufficient collateral ratio after redemption
- Not recommended for beginners
Maintain Sufficient Collateral Ratio
- Although minimum is 110%, recommend maintaining 150%+
- Don't lower collateral ratio after redemption
- Reserve buffer space
Choose Redemption Timing
- Redeem when redemption fee rate is low
- Choose times when network is less congested
- Avoid operations during high market volatility
Understand Fee Mechanism
- Understand redemption fees and Gas fees
- Calculate total costs
- Ensure redemption is economically reasonable
Security First
- Use hardware wallets (e.g., Ledger, Trezor)
- Protect seed phrases and private keys
- Verify website and contract addresses
- Beware of phishing sites and scams
Frequently Asked Questions
Q: What are Liquity redemption fees?
A: Redemption fees are market-determined, usually between 0.5-5%. When redemption pool has sufficient LUSD, may not charge fees. Fee rate will be displayed before transaction.
Q: Can I withdraw ETH without repaying LUSD?
A: Not recommended. If you only withdraw ETH without repaying LUSD, collateral ratio will decrease and may trigger liquidation. Recommend repaying LUSD first, then withdraw ETH after collateral ratio increases.
Q: How long does redemption take?
A: Usually takes minutes to tens of minutes, depending on network congestion and Gas fee settings. ETH will be received after on-chain confirmation.
Q: Will partial redemption affect collateral ratio?
A: Yes, partial redemption will change collateral ratio:
- If only repay LUSD without withdrawing ETH: Collateral ratio increases
- If only withdraw ETH without repaying LUSD: Collateral ratio decreases (may trigger liquidation)
- Need balanced operations to maintain safety margin
Q: Is redemption cost-effective if ETH price rises?
A: This depends on your goals:
- If goal is to take profits, redemption is reasonable
- If goal is to continue holding LUSD, may not need redemption
- Consider opportunity costs and fees
Q: Can I mint again after redemption?
A: Yes, you can mint LUSD again at any time. However, note:
- Need to pay minting fees again
- Need to pay Gas fees
- Market conditions may have changed
Security Tips
- Use Official Channels: Always access the protocol through Liquity Frontend
- Check Contract Address: Confirm you're interacting with official contracts
- High Risk Warning: Minimum collateral ratio 110%, very high risk, not recommended for beginners
- Test Small Amounts: When using for the first time, recommend testing with small amounts
- Protect Private Keys: Never share your private keys or seed phrases
- Follow Official Announcements: Stay updated on protocol updates and risk alerts
- Close Monitoring: Closely monitor collateral ratio after redemption, set price alerts
Related Resources
Protocol Frontend
Liquity Official Documentation
Community Resources
Other Resources
- Decentralized Redemption Overview
- MakerDAO/Sky Protocol Redemption Guide
- Ethena USDE Redemption Tutorial
- Liquity LUSD Minting Guide
⚠️ Important Note: Liquity minimum collateral ratio 110%, very high risk, not recommended for beginners. Please ensure you fully understand the risks and can closely monitor collateral ratio.
Ready to start redeeming LUSD? Visit Liquity Frontend to start your redemption process!