Redemption is the process through which a holder with access to the redemption mechanism exchanges stablecoins for the assets or value specified by the arrangement, typically at or near the target value.
In centrally issued fiat-backed stablecoins, redemption normally removes tokens from circulation and returns fiat value to an eligible customer under the issuer's terms. Protocol-based stablecoins can use different redemption or conversion mechanisms. Direct redemption access may be restricted by eligibility rules, minimum transaction sizes, jurisdiction, compliance requirements, or the structure of the arrangement. A secondary-market holder can therefore have economic exposure to a redemption promise without having direct access to the issuer's redemption window.
The redemption mechanism, the legal right to redeem, and practical access to the redemption channel can differ. Issuer terms may limit direct redemption to specified holders or intermediaries.
Credible redemption at the target value is a major channel through which reserve-backed stablecoins support par trading. Constraints on redemption can weaken arbitrage and increase reliance on secondary-market liquidity.
An eligible customer may return 1 million units of a dollar stablecoin to the issuer, receive the corresponding fiat proceeds under the issuer's terms, and have the redeemed tokens removed from circulation.