What Is the “Redemption Mechanism” for a Fiat-Backed Stablecoin?
The redemption mechanism is the process by which a stablecoin holder exchanges their tokens directly with the issuer for the underlying pegged fiat currency, typically at a 1:1 ratio. This mechanism is the ultimate assurance of the stablecoin's value.
It involves the token holder sending the stablecoin back to the issuer's smart contract, which then burns the tokens, and the issuer's custodian transfers the equivalent fiat currency from the reserve account to the token holder's bank account.
