diff --git a/crates/redeem/src/lib.rs b/crates/redeem/src/lib.rs
index f0e2c50396..0ab97d3316 100644
--- a/crates/redeem/src/lib.rs
+++ b/crates/redeem/src/lib.rs
@@ -517,7 +517,20 @@ impl<T: Config> Pallet<T> {
 
                 ext::fee::get_premium_redeem_fee::<T>(&premium_tokens_in_collateral)?
             } else {
-                // Formula = max_premium_collateral = (FEE * (oldTokens * EXCH * SECURE - oldCol)) / (SECURE - FEE)
+                // The goal of premium redeems is to get the vault back the a healthy collateralization ratio. As such, 
+                // we only award a premium for the amount of tokens required to get the vault back to secure threshold.
+                // The CollateralizationRate is defined as `totalCollateral / convertToCollateral(totalTokens)`
+                // When paying a premium, the collateralization rate gets updated according to the following formula:
+                //     `NewCollateralization = (oldCol - awardedPremium) / ( oldTokens*EXCH - awardedPremium/FEE)`
+                // To calculate the maximum premium we are willing to pay, we set the newCollateralization to
+                // the secure threshold, which gives:
+                //     `SECURE = (oldCol - awardedPremium) / (oldTokens*EXCH - awardedPremium/FEE)``
+                // We can rewrite this formula to calculate the `premium` amount that would get us to the secure threshold:
+                //     `maxPremium = (oldTokens * EXCH * SECURE - oldCol) * (FEE / (SECURE - FEE))`
+                // Which can be interpreted as:
+                //     `maxPremium = missingCollateral * (FEE / (SECURE - FEE))
+                // Note that to prevent repeated premium redeems while waiting for execution, we use to_be_backed_tokens
+                // for `oldCol`, which takes into account pending issues and redeems
 
                 let backing_collateral = ext::vault_registry::get_backing_collateral(&vault_id)?;