# Redemption Redemption logic is embedded in Pencil’s smart contracts and is automatically triggered based on loan maturity dates and repayment flows, ensuring that investors are repaid in accordance with bundle terms and protocol prioritization logic. ### **Grow Token** * Auto-redeemed at maturity without fees * Early redemption is possible if there is sufficient liquidity in the pool * Early exits incur a 1% protocol fee and are processed through a **FIFO (First-In, First-Out) withdrawal queue** Liquidity for Grow Token redemptions comes from three primary sources: 1. **10% Reserve Buffer** – Lending partners can only withdraw 90% of the capital raised. The remaining 10% is held by the protocol as a liquidity reserve to support early redemptions. 2. **Unwithdrawn Capital** – Any funds in the pool that have not yet been drawn down by lending partners remain within the protocol and can be used to fulfill redemption requests. This unutilized capital increases available liquidity in the short term. 3. **Ongoing Repayments** – As borrowers repay their loans, capital flows back into the protocol, replenishing the pool and enabling queued redemptions to be processed. When a Grow Token holder initiates an early withdrawal and the pool lacks sufficient liquid capital, their request is added to a FIFO queue. As new repayments arrive or new deposits are made into the pool, withdrawals are fulfilled in the order they were requested. This system ensures fairness while managing liquidity constraints and discourages premature redemptions through a penalty mechanism. ### **EDUFI NFT** * Interest is distributed on a rolling basis according to the payout frequency defined in the bundle (monthly or quarterly) * Principal is returned only at maturity, following the repayment waterfall logic * No early redemption or transfer mechanism is currently available, but future updates may introduce secondary market options for NFT liquidity --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://pencil-finance.gitbook.io/pencilfinancedocs/protocol-overview/redemption.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.