Redemption
Before expiration, liquidity providers can add liquidity at all times. However, there will be two scenarios of swapping Long and Short tokens back into DAI:
Redeem BEFORE Expiration
Suppose a liquidity provider with A Long token and B Short token (A > B) would like to redeem DAI back before expiration, the underlying process of redemption is swapping part of the Long token into Short token to make the amount of Long and Short equal. Then, redemption would follow the rule of 1 Long + 1 Short → 1 DAI .
Because swapping is involved in the process, redeeming DAI back before the expiration date might cause additional loss due to price slippage.
Redemption before expiration would be charged a "dynamics trading fee" as illustrated in the below chapter:
Redeem AFTER Expiration
After the expiration date of the period, the built-in secondary market will no longer open for any trades. By then, liquidity providers may withdraw Long & Short tokens by their final proportion and redeem DAI back at the settled prices.
What the system would do for liquidity providers is withdrawing Long & Short tokens by their final proportion and then redeem DAI back with these Long/Short tokens.
Redemption after expiration is immune from the issues of price slippage and withdrawal fee.
Redemption before or after expiration will be charged a protocol fee. Learn more in the chapter below:
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