# Functioning of the Protocol

After locking up Bitcoin as collateral in a smart contract on Botanix Network, user’s can create an individual position called a “Trove” and use it to mint $PUSD. Any owner of $PUSD can redeem their stablecoins for the underlying collateral at any time. The redemption mechanism along with algorithmically adjusted fees guarantees a minimum stablecoin value of $1.

To maintain pegging stability, Palladium utilizes a unique liquidation mechanism that relies on an incentivized stability pool and a redistribution cycle from riskier to safer Troves. This mechanism ensures stability even when the collateral ratio drops to the MCR. Instead of relying on active governance or monetary interventions, the protocol maintains peg stability through economically driven user interactions and arbitrage. 

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