Redeeming against a vault

To keep USH pegged at $1, Hedge offers a redemption mechanism, where any user may redeem their USH for the equivalent value in SOL. This SOL will be taken from the user’s vault with the lowest collateral ratio; after a fee is assessed, the vault owner's debt is repaid at a premium. While this may not be an optimal experience for vault owners, they end up with a better collateral ratio which leaves their vault in a healthier state.
Redemptions are only made available to ensure USH has a price floor and only will be profitable when USH is trading below $1. There is also a fee for redemptions so that they don’t happen too frequently, which would degrade the user experience.

Redemption Fee

The redemption fee is a protocol mechanism to ensure that redemption doesn’t happen too frequently, which would degrade the user experience.
The fee charged is the sum of four components:
1. A base fee of 0.5%
2. The amount of USH redeemed compared to the vault type's circulation.
This fee is equal to 0.5 * m/n where m is the amount of USH redeemed and n is the total amount of USH in the respective vault type. The goal is to incentivize the correct percentage of redemption in the system. For example, if USH is trading at $0.98, at most ($1 − $0.98), or 2%, of the total supply needs to be redeemed to get back to peg. Redeeming any extra amount will not be profitable.
That is, if 100 USH is redeemed and there is a total of 1000 USH in circulation, the fee is equal to 0.5 * 100/1000 = 0.05.
3. The fee charged during the last redemption in the system, which decays over time
This is calculated as 0.9^days * lastFee. Here, days is the amount of time since the last redemption. lastFee only includes the USH supply-based fee component and time-based fee component for the last fee charged in the system, and does not include the vault collateral ratio fee component. The initial value of lastFee is zero. This fee component has the following effect: If USH has recently been redeemed, there is an incentive not to do another redemption in the near future.
4. The collateral ratio of the redeemed vault
Only the vault with the lowest collateral ratio can be redeemed against for any given vault type. However, there may be multiple collateral types (e.g. SOL and BTC) each with separate types of vaults; if both exist, the vault with the lowest ratio per collateral type can be redeemed against. Redeeming against a vault with a higher collateral ratio (i.e. a vault in better standing) leads to a higher fee. Therefore, this fee incentivizes users to redeem against the most under-collateralized vault across all vault types and, in turn, for vault users to maintain healthy collateral ratios.
For more detail on the fee calculations, please see the whitepaper.