A redemption gate is a structural limit on how much, how fast, or whether holders can redeem: a suspension, a queue, a daily cap, or a notice period. It is the tool a fund or token issuer uses to stop a redemption run from forcing a fire sale of the underlying assets. The gate is the mechanism. The run is the event the mechanism exists to survive.
A gate written into the documents before launch is a design. The same gate improvised during a stress week is a default, and holders read the two completely differently even when the mechanics are identical.
Scroll to see the full diagram
A gate is a mechanism. A run is an event.
The distinction runs in both directions and it is worth stating each way. A redemption run is holder behaviour: many holders redeeming at once, each rationally, collectively faster than the underlying assets can be liquidated. Nobody designs a run. It happens to you. A redemption gate is issuer behaviour written into the structure in advance: a cap, a queue, a notice period, or a suspension that slows the primary redemption channel so the assets can be sold in order rather than at whatever bid exists on the worst day.
You can have either without the other and both failures are common. A structure with no gate meets a run with a fire sale, and the holders who redeem last absorb the discount the early redeemers avoided. A structure with a gate and no run has a brake nobody has ever tested, sitting in documents nobody has read. Model the run to size the gate. Then write the gate down so the run does not require an improvised decision.
The Reserve Primary Fund, September 2008
The cleanest primary source example of the sequence sits in an SEC staff FAQ. In September 2008 the Reserve Primary Fund calculated its net assets at 97 cents per share and announced it would suspend payment of redemption proceeds to investors for up to seven days after the redemption, with certain exceptions.1
Read the order of events. The run came first, driven by Lehman exposure and the fund breaking its dollar. The gate came second, as a time boxed suspension of payment. The gate did not change the NAV, did not repudiate anyone's claim, and did not make the losses go away. It bought time. That is the entire function, and a structure expecting more from a gate than time has misunderstood what it bought.
The tool that survived, and the tool that did not
Two separate powers get called gates and only one is still routine. Rule 22e-3 remains codified and permits a money market fund's board to suspend redemptions so an orderly liquidation can proceed under specified stress conditions.2 That is a wind down instrument, used when the fund is ending rather than riding something out.
The routine discretionary gate is gone. The 2023 money market fund reforms removed discretionary redemption gates from Rule 2a-7 entirely and replaced them with mandatory liquidity fees for institutional prime and tax exempt funds, alongside daily and weekly liquid asset minimums of 25% and 50%.3 The policy logic is that a fee makes the redeeming holder pay for their own liquidity, while a gate makes everyone wait. In our view that shift is the single most important precedent for anyone designing redemption terms onchain, and most token documentation still reflects the older regime.
A gate closes the primary door and leaves the market open
This is the part that behaves differently onchain. Suspending redemption in a traditional fund mostly stops holders from transacting. Suspending redemption on a token stops the primary channel while the secondary market keeps trading, all night and all weekend, against a reference price that may not have been struck since the gate came down.
The consequence is mechanical. Creation and redemption arbitrage needs both legs to hold price near NAV, and a gate removes the lower leg. With no profitable way to buy cheap and redeem at NAV, the discount has no correcting force and can run as wide as sellers need it to. So a gate on a tokenized product converts a redemption problem into a visible, public price problem, in real time, in front of everyone. That is not an argument against gates. It is an argument for deciding in advance whether the secondary market pauses with the primary one, and saying so.
What to write down before you need it
Four items, in the offering documents rather than a runbook. The trigger, stated as an observable threshold instead of a judgement call. Who decides, named by role. What form the gate takes: pro rata queue, daily cap, notice period, or full suspension, since those distribute pain very differently. And what ends it, because a gate with no stated exit is a suspension holders will price as permanent.
Whether a specific gate is permissible for a specific vehicle in a specific jurisdiction is a question for counsel and, where one exists, the fund's board. The design question is separate and it is yours: does the gate you have written actually survive the run you have modelled, and can a holder read both before they buy.
Common questions
What is a redemption gate?
It is a structural limit on redemptions: a suspension, a pro rata queue, a daily cap or a notice period, imposed so a fund or token issuer can liquidate assets in order rather than at distressed prices. The Reserve Primary Fund's September 2008 suspension of redemption payments for up to seven days is the documented example.1 A gate buys time. It does not create liquidity or reduce losses.
What is the difference between a redemption gate and a redemption run?
A run is the event and a gate is the response. A redemption run is many holders redeeming at once, faster than the underlying can be liquidated, which is holder behaviour nobody designs. A gate is a limit the issuer builds into the structure in advance to contain that behaviour. The 2008 Reserve Primary Fund sequence shows both in order: the run followed the fund breaking its dollar, the gate followed the run.1
Can a money market fund still impose a redemption gate?
Not as a routine discretionary tool. The 2023 reforms removed discretionary redemption gates from Rule 2a-7 and substituted mandatory liquidity fees for institutional prime and tax exempt funds.3 A separate rule still allows a board to suspend redemptions so an orderly liquidation can proceed under specified conditions, but that applies to a fund being wound down rather than one managing a stressful week.2
See Tokenomics Audit for how this applies in practice.
Sources
- Responses to Questions About The Reserve Fund and Money Market Funds
U.S. Securities and Exchange Commission, Division of Investment Management, 2008
Staff account of the Reserve Primary Fund calculating net assets at 97 cents per share and suspending payment of redemption proceeds for up to seven days. Documents the run and the gate as separate, sequential facts. - 17 CFR 270.22e-3, Exemption for liquidation of money market funds
Electronic Code of Federal Regulations, current
The codified suspension power permitting a money market fund's board to halt redemptions so an orderly liquidation can proceed under specified stress conditions. - Money Market Fund Reforms; Form PF Reporting Requirements, Release Nos. 33-11211; 34-97876; IA-6344
U.S. Securities and Exchange Commission, 2023
Final rule removing discretionary redemption gates from Rule 2a-7, imposing mandatory liquidity fees on institutional prime and tax exempt funds, and setting daily and weekly liquid asset minimums at 25% and 50%.
Last reviewed 2026-08
Know the terms but not sure how they apply to your project? That is what an engagement is for. We design, document, and stress-test the whole token economy inside the Tokenomics Data Room.
80+ projects advised. Complete tokenomics in 4 to 6 weeks.