What is redemption?

Exchanging a token for the asset it represents directly with the issuer, rather than selling it on a market.

For a stablecoin or a tokenized fund this is the mechanism that ties price to value: if anyone can redeem at par, a discount is an arbitrage. What matters is who may redeem, at what minimum size, at what fee, and how quickly, because a token redeemable only by vetted institutions above a large minimum trades on that access rather than on the reserve itself.

Most holders never redeem anything and do not need to. The reason to understand it anyway is that redemption is what makes a peg mean something. Without it, a token backed by reserves is a token whose price rests on the belief that reserves exist, which is a different and weaker proposition.

How it works

1. Eligibility. The issuer decides who may redeem. Typically this means an onboarded institutional account that has passed identity and sanctions checks, not a retail holder.
2. Minimum size. A floor, often in the six figures, keeps operational cost per redemption reasonable for the issuer.
3. Fee. Some issuers charge a redemption fee, some charge nothing above a threshold, and terms differ per issuer.
4. Settlement. The tokens are burned and the underlying is paid out, usually by wire on a business-day calendar. See burn and settlement.

That mechanism is what closes a discount. If the token trades at $0.995 and an eligible party can redeem at $1.000, buying and redeeming is profit until the gap closes. The strength of a peg is therefore roughly the size of the eligible redeemer set divided by how much friction stands in their way.

Redemption also exists for a wrapped token, where a custodian returns the underlying coin, and for a tokenized fund, where it follows the fund's own dealing calendar.

Example

Illustrative terms. An issuer redeems at par, with a $100,000 minimum, no fee, and settlement by wire in one business day.

A trading firm sees the token at $0.9970 on an exchange. It buys $10,000,000 worth for $9,970,000, redeems, and receives $10,000,000, a gross profit of $30,000 before wire costs and the risk of holding overnight. That buying pressure is what pushes the price back toward $1.0000.

A holder with $2,000 cannot participate. Their only exit is selling on an exchange at whatever the book offers, which during stress may be well below par. The peg is repaired by institutions and experienced by everyone.

Why it matters when you buy

If you buy a stablecoin or a tokenized product, your realistic exit is the secondary market, not the issuer. That makes venue depth and listing breadth the practical constraint rather than the reserve. The liquidity pages measure the depth you would sell into, the fee comparison covers what the trade costs, and Buyability covers where an asset is available at all.

Related terms

peg — what redemption enforces; fiat backed stablecoin — the usual redeemable asset; burn — tokens destroyed on redemption; settlement — when the money actually arrives; tokenized fund — redemption on a dealing calendar; depeg — what happens when the route closes.

Questions

Can I redeem a stablecoin myself?

Usually not. Most issuers serve onboarded institutional accounts above a large minimum. Individuals sell on an exchange instead, which is why exchange liquidity matters more to you than the reserve composition does.

Why does a token trade below par if it is redeemable?

Because redemption has friction: eligibility, minimums, fees, and settlement time. During stress the discount can exceed that friction briefly, and it persists as long as eligible redeemers are unable or unwilling to act.

What happens to the tokens I redeem?

They are burned, permanently removing them from supply, and the issuer pays out the underlying. That is why redemption reduces circulating supply while a sale on an exchange does not.