Redemptions

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Redemptions
This section explains how redeeming ARTH would work
When ARTH is redeemed, the collateral provided to the redeemer is allocated from loans with the lowest collateral ratio, even if it is above the minimum collateral ratio 110%.  
During a redemption, the borrower who has a loan with the lowest collateral ratio will be first in line for being redeemed against. Generally to avoid being redeemed against, borrowers are encouraged to maintain a high enough collateral ratio.
During a redemption, the value by which a loan's collateral is reduced corresponds to the nominal ARTH amount by which the loan's debt is decreased. 
Redemptions can be thought of as somebody else repaying your debt and retrieving an equivalent amount of your collateral. As a positive side effect, redemptions help improve the collateral ratio of the affected loans, making them less risky. 
There are two kinds of redemptions:
Partial Redemptions where a loan's debt is partially reduced (not to 0).
Full Redemptions where a loan's debt is fully reduced to 0.
Redemptions are performed by the TroveManager contract which is deployed at 0xF4eD5d0C3C977B57382fabBEa441A63FAaF843d3#code​
Partial Redemptions
In such a case, when a loan is closed, and the borrower can claim their collateral surplus and the w at any time. 
Let’s say you have a loan with 200 ETH collateralized with a debt of 3,200 ARTH and the current price of ETH is 20 $GMU.
This puts your collateral ratio (CR) at 125% (= 100% * (20 * 200) / 3,200). Let’s imagine this is the lowest CR in the protocol and look at two examples of a partial redemption and a full redemption:
Example of a partial redemption
Somebody redeems 1,200 ARTH for 60 ETH and thus repays 1,200 ARTH of your debt, reducing it from 3,200 ARTH to 2,000 ARTH. 
In return, 60 ETH, worth 1,200 $GMU, is transferred from your loan to the redeemer. Your collateral goes down from 200 ETH to 140 ETH, while your collateral ratio goes up from 125% to 140% (= 100% * (20 * 140) / 2,000).
Full Redemptions
A full redemption happens when the amount of ARTH redeemed for ETH is more than the amount of debt a loan has. In such situations the borrower's loan is completely closed (as it's debt is paid off by the redeemer's ARTH), the equivalent amount of ETH is sent back to the redeemer and the borrower's collateral (ETH) exposure is reduced by the amount redeemed.
Example of a full redemption
Somebody redeems 6,000 ARTH for 300 ETH. Given that the redeemed amount is larger than your debt minus  50 ARTH (set aside as a Liquidation Reserve), your debt of 3,200 ARTH is entirely cleared and your collateral gets reduced by 3,150 $GMU of ETH, leaving you with collateral of 40 ETH (= 200 - 3,200 / 20).
In both cases, the net value of your position minus the debt remains the same, however during a redemption your exposure to the underlying asset decreases. 
Redemption Fees
Under normal operation, the redemption fee is given by the formula (baseRate + 0.5%) * collateral redeemed
How is the baseRate calculated?
Redemption fees are based on the baseRate state variable, which is dynamically updated. The baseRate increases with each redemption, and decays according to the time passed since the last fee event - i.e. the last redemption or issuance of ARTH.
Upon each redemption:
baseRate is decayed based on time passed since the last fee event
baseRate is incremented by an amount proportional to the fraction of the total ARTH supply that was redeemed
The redemption fee is given by (baseRate  + 0.5%) * ETHdrawn
Stability Fees
For every redemption, the ARTH holder will have to pay a fee which is a percentage of the value being liquidated in MAHA tokens.
This acts as a method to dampen the redemption of bonds which can often create a negative price impact if done all too quickly. The stability fee is not meant to de-incentivize ARTH holders from redeeming their bonds but rather used to control the speed at which they do so.
The stability fee is managed via Governance.
FAQs
Is redemption the same as paying back my debt? 
No, redemptions are a completely separate mechanism. All one has to do to pay back their debt is adjust their loan's debt and collateral. 
As a borrower, do I lose money if I'm redeemed against? 
If your loan is redeemed against, you do not incur a net loss. However, you will lose some of your collateral exposure. Your loan's collateral ratio will also improve after a redemption. 
How can I avoid my loan's collateral being redeemed? 
The best way to avoid being redeemed against is by maintaining a high collateral ratio relative to the rest of the loans in the system. The riskiest loans (i.e. lowest collateralized loans) are first in line when a redemption takes place. 
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Partial Redemptions
Full Redemptions
Redemption Fees
How is the baseRate calculated?
Stability Fees
FAQs
Is redemption the same as paying back my debt?
As a borrower, do I lose money if I'm redeemed against?
How can I avoid my loan's collateral being redeemed?