> For the complete documentation index, see [llms.txt](https://delpho.gitbook.io/delpho-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://delpho.gitbook.io/delpho-docs/how-delpho-works/redemptions-and-the-peg.md).

# Redemptions and the peg

Redemption is where the peg lives or dies. A stablecoin can have a clean hedge, a clean audit, and a healthy treasury, and still lose its peg if the only path for users to exit is a forced hedge unwind into thin liquidity. Most loss-making stablecoin events in the last cycle were forced into exactly that path immediately. Delpho is built to use it last.

{% hint style="info" %}
For current redemption fees and treasury reserve sizing, see [Parameters](/delpho-docs/parameters.md). For the user-facing flow, see  [Redeem and unstake](/delpho-docs/using-delpho/redeem-and-unstake.md).
{% endhint %}

## How redemption works

Any USDV holder can redeem at any time. The redeemer burns USDV at $1, pays a redemption fee, and receives HYPE valued at the same $1 net of the fee.

When USDV trades below $1, the redemption is profitable: buy USDV at, say, $0.98, redeem at $1.00 in HYPE, capture the spread. That arbitrage is the lever that pulls the peg back to par. The mechanism is the same regardless of conditions. What changes under stress is where the HYPE comes from.

### Source 1: Treasury Reserves

A protocol-owned smart-contract balance targeting roughly 5% of TVL, funded by retaining a portion of positive-funding inflow during normal periods. Redemption flow hits the treasury first.

While redemptions are honored from the reserve, the structural hedge stays intact. Peg defense and yield engine are decoupled, which matters most in the moments when that decoupling is hardest to keep.

The reserve is held as staked sUSDV and doubles as the stability pool that absorbs liquidations.

### Source 2: Hedge unwind, starting with the least-collateralized positions

If treasury depth is not enough, the protocol unwinds the structural hedge, beginning with the least collateralized individual positions. The targeted position has its debt reduced and a portion of its collateral consumed at par, with no penalty beyond the loss of the position.

This is slower than draining the reserve. It is the path that has historically destabilized other delta-neutral designs when it was the only option available. In Delpho's stack it is the second and last source, behind the treasury.

## Other peg-defense mechanisms

Two further mechanisms support the USDV peg outside the direct redemption flow:

* **Automatic buyback**: when USDV trades below $1, the protocol buys USDV from the open market using funding fees. The bought USDV is distributed to stakers as additional yield.
* **Organic buy pressure**: DeFi participants who want delta-neutral exposure can buy USDV from the market and stake it for sUSDV yield rather than minting fresh, supporting the peg.

## Under stress

The redemption design is what allows a USDV holder to treat USDV as dollar liquidity even when the yield-bearing version is in a stress window. For the risk treatment, see [Peg and redemption risk](/delpho-docs/risk/peg-and-redemption-risk.md).

For backtested behavior of the peg defense during the 10 October 2025 ADL crash, the worst funding event in Hyperliquid's history, see [Stress test results](/delpho-docs/risk/stress-test-results.md).