How to Redeem DAI/USDS and Retrieve Collateral Through MakerDAO/Sky Protocol
Learn how to redeem DAI/USDS stablecoins and retrieve collateral using MakerDAO and Sky protocol, understanding the complete redemption process and risk management.
What is MakerDAO/Sky Protocol Redemption?
MakerDAO and Sky protocol redemption refers to the process of repaying generated DAI/USDS stablecoins to the protocol to retrieve previously deposited collateral (e.g., ETH, WBTC, etc.). After redemption, you can close the vault or keep it open.
Pre-redemption Preparation
1. Check Position Status
Information to Confirm:
- Health Factor: Ensure sufficiently high (recommend 1.5+), avoid triggering liquidation after redemption
- Current Collateral Ratio: Ensure sufficiently high, avoid triggering liquidation after redemption
- Outstanding Debt: Amount of DAI/USDS to repay
- Available Collateral: Amount of collateral that can be withdrawn
- Stability Fee: Accumulated stability fees to pay (if any)
How to View in Spark.fi:
- Access "My Portfolio" page
- View outstanding debt in "Borrow" section
- View available collateral in "Supply" section
- View health factor and liquidation price
2. Prepare Stablecoins
Need to Prepare:
- Sufficient DAI/USDS for debt repayment
- Additional stablecoins for stability fees (if any)
- Sufficient ETH to pay Gas fees
3. Choose Redemption Strategy
Full Redemption:
- Repay all DAI/USDS debt
- Withdraw all collateral
- Close position
- Suitable when no longer need stablecoins
Partial Redemption:
- Only repay part of DAI/USDS
- Withdraw part of collateral
- Keep position open
- Suitable when need partial liquidity
Redemption Process
Method 1: Through Spark.fi (Recommended)
Spark.fi is the official frontend for MakerDAO, providing modern interface and complete functionality.
Step 1: Access Spark.fi
- Open your browser and visit Spark.fi
- Click "Connect Wallet" in the top right corner
- Connect wallet containing DAI/USDS and collateral
Step 2: View Position Status
Navigate to "My Portfolio" Page:
- Click "My Portfolio" on Spark.fi homepage
- View your position overview
Check Key Information:
- In "Borrow" section view:
- Outstanding DAI/USDS amount
- Health Factor
- Liquidation price
- In "Supply" section view:
- Available collateral amount
- Collateral types and amounts
- View accumulated stability fees (if any)
- In "Borrow" section view:
Step 3: Repay DAI/USDS
Find Repay Option:
- In "Borrow" section of "My Portfolio" page
- Find borrowed asset (DAI or USDS) in "Your borrow" column
- Click "Repay" button on the right
Enter Repay Amount:
- Enter DAI/USDS amount to repay in "Repay" window
- Can choose full repayment (click "MAX") or partial repayment
- View transaction overview:
- Remaining debt
- Health Factor changes
- Estimated fees
Complete Repay Transaction:
- Follow instructions in "Actions" section to complete necessary transactions
- Approve token transfer (required for first time)
- Confirm transaction details
- Confirm transaction in wallet
- Wait for on-chain confirmation (usually minutes)
- After repayment completes, your position will update, health factor will increase accordingly
💡 Important Note: If you borrowed USDS through Easy Borrow Flow, must repay using DAI. You can downgrade USDS to DAI on Savings page. More information refer to Spark.fi Documentation.
Step 4: Withdraw Collateral
Return to "My Portfolio" Page:
- Find collateral assets you deposited in "Supply" section
Click "Withdraw" Button:
- Find collateral asset to withdraw
- Click "Withdraw" button on the right
Enter Withdrawal Amount:
- Enter collateral amount to withdraw
- Or click "MAX" to withdraw all (need to ensure health factor is sufficient)
- View transaction details:
- Health factor after withdrawal
- Remaining collateral
- Transaction fees
Confirm Withdrawal:
- Confirm health factor remains sufficiently high (recommend maintaining 1.5+, equivalent to 150% collateral ratio)
- Confirm transaction details
- Confirm transaction in wallet
- Wait for on-chain confirmation
- Collateral will return to your wallet
Step 5: Close Position (Optional)
If you choose full redemption:
Repay All Debt:
- Repay all DAI/USDS
- Pay all stability fees
Withdraw All Collateral:
- Withdraw all collateral
- Confirm position balance is zero
Position Auto-Closes:
- When both debt and collateral are zero, position will automatically close
- Can confirm position is closed in Spark.fi "My Portfolio"
Managing Positions
Monitor Health Factor and Collateral Ratio
Why It's Important:
- Health Factor or collateral ratio may decrease after redemption
- Need to ensure safety margin is maintained after redemption
- Avoid triggering liquidation
How to Monitor:
View in Spark.fi:
- Access "My Portfolio" page
- View Health Factor
- Check collateral ratio and liquidation price
- Use health factor monitoring tools provided by protocol
Use Third-party Tools:
- DeFiPulse
- Zapper
- DeBank
- Other DeFi monitoring tools
Set Price Alerts:
- Use price alert tools
- Notify promptly when collateral price drops
- Adjust collateral ratio or health factor promptly
Partial Redemption Strategies
Strategy 1: Only Repay Stablecoins
- Repay partial DAI/USDS
- Don't withdraw collateral
- Result: Collateral ratio increases, safer
Strategy 2: Only Withdraw Collateral
- Don't repay DAI/USDS
- Withdraw partial collateral
- Result: Collateral ratio decreases, risk increases (not recommended)
Strategy 3: Balanced Redemption
- Repay partial DAI/USDS
- Withdraw partial collateral
- Result: Maintain stable collateral ratio
Recommended Strategy:
- Prioritize repaying stablecoins to increase health factor and collateral ratio
- Withdraw collateral only when health factor is sufficiently high (recommend 1.5+)
- Maintain health factor above 1.5 (equivalent to 150% collateral ratio)
Fee Explanation
Stability Fee
What is Stability Fee:
- Annual rate, adjusted based on market
- Usually 1-5%
- Accumulates in debt
How to Pay:
- Stability fee accumulates in debt
- Need to pay together when repaying DAI/USDS
- Or cover stability fee by adding collateral
Fee Examples:
- Debt: 10,000 DAI
- Stability fee rate: 2%
- Holding time: 1 year
- Stability fee: Approximately 200 DAI
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:
- Repay stablecoins: 1 transaction
- Withdraw collateral: 1 transaction
- Full redemption: 2 transactions
- Total Gas fees: Approximately $20-100 (normal conditions)
No Redemption Fees
MakerDAO/Sky Protocol:
- ✅ No Redemption Fees: No additional redemption fees charged
- ✅ Only Gas: Only need to pay Gas fees
- ✅ Transparent Fees: All fees transparent and visible
Risk Management
1. Liquidation Risk
Risk Sources:
- Health Factor or collateral ratio may decrease after redemption
- Market volatility may cause insufficient health factor
- Need to ensure safety margin is maintained after redemption
Mitigation Strategies:
- Check health factor and collateral ratio before redemption
- Don't withdraw too much collateral
- Maintain health factor above 1.5 (equivalent to 150% collateral ratio)
- Be cautious during high market volatility
- Use health factor monitoring tools provided by protocol
2. Stability Fee Risk
Risk Sources:
- Stability fees continue to accumulate
- High costs for long-term holding
- Need to pay together when redeeming
Mitigation Strategies:
- Understand stability fee rates
- Calculate total costs
- Consider holding time
- Redeem promptly to reduce fees
3. Gas Fee Risk
Risk Sources:
- Network congestion causes high Gas
- Need multiple transactions (repay + withdraw)
- 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 batch operations
Best Practices
Plan Redemption Timing
- Choose stable market times for redemption
- Avoid operations during high market volatility
- Consider Gas fee costs
Maintain Safety Margin
- Maintain sufficient health factor after redemption (recommend 1.5+, equivalent to 150% collateral ratio)
- Don't withdraw too much collateral
- Reserve buffer space
- Use health factor monitoring tools provided by protocol
Batch Redemption
- Recommend batch processing for large redemptions
- Reduce price impact
- Reduce single transaction risk
Monitor Fees
- Understand all related fees
- Calculate total costs
- Ensure redemption is economically reasonable
Test Small Amount Redemption
- Recommend small amount testing for first redemption
- Familiarize with process before large operations
- Verify all steps are normal
Frequently Asked Questions
Q: Can I only withdraw collateral without repaying stablecoins?
A: Not recommended in most cases. If you only withdraw collateral without repaying stablecoins, Health Factor and collateral ratio will decrease and may trigger liquidation. Recommend repaying stablecoins first, then withdraw collateral after health factor and collateral ratio increase.
Q: How long does redemption take?
A: Usually takes minutes to tens of minutes, depending on network congestion and Gas fee settings. Repayment and withdrawal each require one on-chain confirmation.
Q: What are the redemption fees?
A: MakerDAO/Sky protocol does not charge redemption fees, only need to pay Gas fees. But need to pay accumulated stability fees (if any).
Q: Is redemption cost-effective if collateral price rises?
A: This depends on your goals:
- If goal is to take profits, redemption is reasonable
- If goal is to continue holding stablecoins, may not need redemption
- Consider opportunity costs and fees
Q: Can I mint again after redemption?
A: Yes, you can mint again at any time. However, note:
- Need to pay minting fees again
- Need to pay Gas fees
- Market conditions may have changed
Q: Will partial redemption affect health factor or collateral ratio?
A: Yes, partial redemption will change Health Factor and collateral ratio:
- If only repay stablecoins without withdrawing collateral: Health Factor and collateral ratio increase
- If only withdraw collateral without repaying stablecoins: Health Factor and collateral ratio decrease (may trigger liquidation)
- Need balanced operations to maintain safety margin (recommend maintaining health factor above 1.5)
Q: What is Health Factor?
A: Health Factor is an indicator used by Spark.fi to measure position safety:
- Health Factor = 1.0: Reached liquidation threshold
- Health Factor < 1.0: May be liquidated
- Health Factor > 1.5: Relatively safe (equivalent to 150% collateral ratio)
- Health Factor > 2.0: Very safe (equivalent to 200% collateral ratio)
Recommend maintaining health factor above 1.5 to ensure safety.
Security Tips
- Use Official Channels: Always access the protocol through Spark.fi
- Check Contract Address: Confirm you're interacting with official contracts
- 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
- Use Hardware Wallets: Improve security, use Ledger or Trezor
Related Resources
Protocol Frontend
MakerDAO Official Documentation
- MakerDAO Documentation
- MakerDAO Developer Documentation
- MakerDAO Whitepaper
- MakerDAO GitHub
- MakerDAO Forum
- MakerDAO Discord
Spark.fi Official Documentation
Sky Protocol Resources
Other Resources
- Decentralized Redemption Overview
- Ethena USDE Redemption Tutorial
- Liquity LUSD Redemption Guide
- MakerDAO/Sky Protocol Minting Guide
Ready to start redeeming DAI/USDS? Visit Spark.fi to start your redemption process!