> For the complete documentation index, see [llms.txt](https://docs.ethos.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.ethos.finance/understanding-ethos-reserve/understanding-usdern.md).

# Understanding $ERN

Optimal usage of Ethos Reserve is directly correlated to optimal understanding of the ERN token, why it matters, and how different market conditions can impact its use cases.

**The ERN Peg**\
While ERN mechanics establish a soft peg to the US dollar, its true value lies in a range between $0.995 and $1.085. The reason for this is due to the minting and redemption features available to ERN holders.

**When ERN is below $1…**\
Each ERN token can be redeemed for $1 worth of collateral from the Ethos Reserve smart contracts. This operation is called a **Redemption**, and incurs a 0.5% fee which is sent to the **Staking Pool**.

{% hint style="info" %}
Redemptions are handled almost entirely by bots within seconds of ERN dipping below peg. For this reason, they are only done directly from the smart contract level.
{% endhint %}

Redemptions are different from withdrawals or repayments, as they can be performed by users whether they have an open position or not. This makes arbitrage when ERN is below $1 very profitable.

**When ERN is above $1…**\
When ERN rises above $1, minting it gets progressively cheaper. This is because Ethos values each ERN token as $1 at time of issuance. This means when ERN is valued at $1.05 on an external DEX, every $100 of ERN minted nets an extra $5.

The stability pool is able to close unhealthy debt positions within Ethos Reserve for a profit to ensure it remains fully collateralized. Arbitrage efficiency and liquidation bonus mean that ERN price may range slightly, but it should never deviate excessively from $1 without effectively being able to restore itself.