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minting-reward-and-withdrawal-fees.md

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Minting Reward and Withdrawal Fees

When minting rewards and withdrawal fees are high:

  • Issuers are incentivized to mint ZeUSD
  • Issuers are disincentivized to redeem ZeUSD
  • This increases the ZeUSD supply
  • The increased supply tends to put downward pressure on the ZeUSD price

When withdrawal fees, minting rewards are low:

  • Users are incentivized to redeem/withdraw
  • Users are disincentivized to mint ZeUSD
  • This decreases the ZeUSD supply
  • The decreased supply tends to put upward pressure on the ZeUSD price

At the current stage, protocol implements a simplified state machine for both minting rewards and redemption fees, characterized by the following parameters:

Minting Rewards States:

  1. Fixed Stability Rate: A predetermined positive rate offered to incentivize minting
  2. Zero Rate: No minting incentives provided

Redemption Fee States:

  1. Positive Fee: A non-zero fee applied to redemptions
  2. Zero Fee: No cost barrier for redemptions