Mechanism Explanation of the SFT-FIL Redemption in Liquidity Pool

3 min readAug 24, 2023

Redemption Pool: A smart contract mechanism under the SFT protocol enabling convenient FIL redemption

The redemption pool mechanism under the SFT protocol, as a critical component, utilizes the Filecoin Virtual Machine (FVM) to offer users a streamlined solution for redeeming FIL. This article delves into the operational details of the redemption pool and its underlying core mechanisms.

Overview of the Redemption Pool Mechanism

The redemption pool mechanism is at the heart of the SFT protocol and is currently built on the FVM. Its main objective is to establish an intelligent contract pool to fulfill users’ needs to redeem FIL from the contract to their personal addresses. FIL funds within the redemption pool mainly come from two channels:

Filecoin Node Vesting: According to Filecoin node and official rules, the expiration period is set at 540 days. After a node expires, the smart contract automatically transfers the FIL from within the node to the redemption pool, catering to users seeking to redeem FIL.

Liquidity Pool: When the utilization rate of the Pool Liquidity Pool drops below 95%, it provides FIL liquidity support to the redemption pool. Hence, during periods of high redemption demand, the liquidity pool temporarily supplies FIL to fulfill users’ redemption needs.

Priority Order within the Redemption Pool Mechanism

In the redemption pool mechanism, the following priority relationships are worth noting:

Liquidity Pool Support: The Liquidity Pool offers FIL liquidity to the redemption pool, constituting a form of lending. SFT within the redemption pool is pledged to the Pool Liquidity Pool, which gains profit rights from these SFT holdings.

Repayment Priority: When Filecoin nodes release expired FIL, if the utilization rate of the Pool Liquidity Pool exceeds 95%, repayment is directed to the Pool Liquidity Pool first, and the remaining FIL is used to satisfy the redemption needs of queued users.

Explanation of On-Chain Queueing Mechanism:

Several factors contribute to certain redemption users needing to queue:

Node Release Cycle Differences: Different types of Filecoin nodes have distinct release cycles, with varying quantities released in each batch. These disparities stem from Filecoin’s public chain node rules.

Pool Liquidity Utilization: When the utilization of the Liquidity Pool surpasses 95%, and the available quantity from the current release batch is exhausted, subsequent redemption requests from users need to queue on-chain until new funds are available for immediate redemption.

Redemption Operations on the BSC Chain

Although the current redemption network of SFT Protocol V2 resides on Filecoin’s FVM, it will expand to the BSC network in the future. Users with SFT addresses on the BSC network will need to use the SFT cross-chain bridge to transfer SFT to the FVM before proceeding with redemption operations. Thus, the redeemed FIL will represent genuine FIL on the FVM.

In conclusion, the redemption pool mechanism, a key component of the SFT protocol, aims to provide FIL holders with an efficient redemption mechanism. Through automated releases, liquidity pool support, and priority settings, this mechanism aims to enhance the FIL redemption experience while safeguarding user rights in cross-chain operations.

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