diff --git a/apps/api/src/treasury/interfaces/redemption.interface.ts b/apps/api/src/treasury/interfaces/redemption.interface.ts
new file mode 100644
index 0000000..7eb68b5
--- /dev/null
+++ b/apps/api/src/treasury/interfaces/redemption.interface.ts
@@ -0,0 +1,38 @@
+export enum RedemptionStatus {
+  PENDING = 'pending',
+  BURNING = 'burning',
+  WITHDRAWAL_QUEUED = 'withdrawal_queued',
+  FAILED = 'failed',
+}
+
+export class RedeemDto {
+  /** Mirror asset code to burn (e.g. "USDC", "ARS") */
+  asset_code!: string;
+  /** Amount of mirror asset to redeem */
+  amount!: string;
+  /** Merchant's Stellar address that holds the mirror assets */
+  merchant_wallet!: string;
+  /** Address to receive the underlying base currency */
+  destination_address!: string;
+}
+
+export interface WithdrawalJob {
+  withdrawal_id: string;
+  merchant_id: string;
+  asset_code: string;
+  amount: string;
+  destination_address: string;
+  burn_transaction_hash: string;
+  queued_at: string;
+}
+
+export interface RedeemResponse {
+  redemption_id: string;
+  merchant_id: string;
+  asset_code: string;
+  amount: string;
+  status: RedemptionStatus;
+  burn_transaction_hash: string;
+  withdrawal_id: string;
+  created_at: string;
+}
diff --git a/apps/api/src/treasury/redemption.service.ts b/apps/api/src/treasury/redemption.service.ts
new file mode 100644
index 0000000..5dbfdca
--- /dev/null
+++ b/apps/api/src/treasury/redemption.service.ts
@@ -0,0 +1,198 @@
+import {
+  BadRequestException,
+  Injectable,
+  Logger,
+  UnprocessableEntityException,
+} from '@nestjs/common';
+import {
+  RedeemDto,
+  RedeemResponse,
+  RedemptionStatus,
+  WithdrawalJob,
+} from './interfaces/redemption.interface';
+
+@Injectable()
+export class RedemptionService {
+  private readonly logger = new Logger(RedemptionService.name);
+
+  private readonly STELLAR_HORIZON_URL =
+    process.env.STELLAR_HORIZON_URL ?? 'https://horizon-testnet.stellar.org';
+  // TODO: pass process.env.SOROBAN_RPC_URL to SorobanRpc.Server once contract is deployed
+  private readonly BURN_CONTRACT_ID = process.env.BURN_CONTRACT_ID ?? '';
+
+  /** In-memory withdrawal queue — replace with a real queue (BullMQ, SQS, etc.) */
+  private readonly withdrawalQueue: WithdrawalJob[] = [];
+
+  async redeem(merchantId: string, dto: RedeemDto): Promise<RedeemResponse> {
+    const { asset_code, amount, merchant_wallet, destination_address } = dto;
+
+    // -------------------------------------------------------------------------
+    // Step 1: Validate merchant balance
+    // -------------------------------------------------------------------------
+    const balance = await this.getMerchantBalance(merchant_wallet, asset_code);
+    const requested = parseFloat(amount);
+
+    if (isNaN(requested) || requested <= 0) {
+      throw new BadRequestException('amount must be a positive number');
+    }
+
+    if (balance < requested) {
+      throw new BadRequestException(
+        `Insufficient balance: wallet holds ${balance} ${asset_code}, requested ${requested}`,
+      );
+    }
+
+    this.logger.log(
+      `[Redeem] Balance OK — merchant=${merchantId} wallet=${merchant_wallet} ` +
+        `balance=${balance} ${asset_code} requested=${requested}`,
+    );
+
+    // -------------------------------------------------------------------------
+    // Step 2: Invoke Soroban burn function
+    // -------------------------------------------------------------------------
+    const burnTxHash = await this.invokeBurn(merchant_wallet, asset_code, amount);
+
+    this.logger.log(
+      `[Redeem] Burn submitted — merchant=${merchantId} asset=${asset_code} ` +
+        `amount=${amount} burn_tx=${burnTxHash}`,
+    );
+
+    // -------------------------------------------------------------------------
+    // Step 3: Trigger underlying asset withdrawal (handled by withdrawal worker)
+    // -------------------------------------------------------------------------
+    const withdrawalId = await this.enqueueWithdrawal({
+      merchantId,
+      assetCode: asset_code,
+      amount,
+      destinationAddress: destination_address,
+      burnTransactionHash: burnTxHash,
+    });
+
+    this.logger.log(
+      `[Redeem] Withdrawal queued — withdrawal_id=${withdrawalId} destination=${destination_address}`,
+    );
+
+    return {
+      redemption_id: crypto.randomUUID(),
+      merchant_id: merchantId,
+      asset_code,
+      amount,
+      status: RedemptionStatus.WITHDRAWAL_QUEUED,
+      burn_transaction_hash: burnTxHash,
+      withdrawal_id: withdrawalId,
+      created_at: new Date().toISOString(),
+    };
+  }
+
+  // ---------------------------------------------------------------------------
+  // Step 1 helper: query Horizon for the mirror-asset balance
+  // ---------------------------------------------------------------------------
+  private async getMerchantBalance(
+    merchantWallet: string,
+    assetCode: string,
+  ): Promise<number> {
+    const url = `${this.STELLAR_HORIZON_URL}/accounts/${merchantWallet}`;
+    const res = await fetch(url);
+
+    if (res.status === 404) {
+      throw new BadRequestException(
+        `Stellar account ${merchantWallet} not found on network`,
+      );
+    }
+    if (!res.ok) {
+      throw new UnprocessableEntityException(
+        `Horizon returned HTTP ${res.status} for account ${merchantWallet}`,
+      );
+    }
+
+    const account = (await res.json()) as {
+      balances: Array<{
+        asset_type: string;
+        asset_code?: string;
+        balance: string;
+      }>;
+    };
+
+    const entry = account.balances.find(
+      (b) => b.asset_code?.toUpperCase() === assetCode.toUpperCase(),
+    );
+
+    return entry ? parseFloat(entry.balance) : 0;
+  }
+
+  // ---------------------------------------------------------------------------
+  // Step 2 helper: call the Soroban burn function
+  // ---------------------------------------------------------------------------
+  private async invokeBurn(
+    _merchantWallet: string,
+    _assetCode: string,
+    _amount: string,
+  ): Promise<string> {
+    if (!this.BURN_CONTRACT_ID) {
+      // Contract not yet deployed — return a placeholder hash in dev/test
+      this.logger.warn(
+        '[Redeem] BURN_CONTRACT_ID not configured; skipping real burn (dev mode)',
+      );
+      return `simulated_burn_${crypto.randomUUID()}`;
+    }
+
+    // TODO: Replace with @stellar/stellar-sdk SorobanRpc client once contract is deployed.
+    //
+    // Example using stellar-sdk (v14+):
+    //   const server = new SorobanRpc.Server(this.SOROBAN_RPC_URL);
+    //   const contract = new Contract(this.BURN_CONTRACT_ID);
+    //   const account = await server.getAccount(merchantWallet);
+    //   const tx = new TransactionBuilder(account, { fee: BASE_FEE, networkPassphrase })
+    //     .addOperation(
+    //       contract.call('burn', ...[
+    //         Address.fromString(merchantWallet).toScVal(),
+    //         nativeToScVal(BigInt(Math.round(parseFloat(amount) * 1e7)), { type: 'i128' }),
+    //       ]),
+    //     )
+    //     .setTimeout(30)
+    //     .build();
+    //   const prepared = await server.prepareTransaction(tx);
+    //   prepared.sign(merchantKeypair);
+    //   const result = await server.sendTransaction(prepared);
+    //   return result.hash;
+
+    throw new UnprocessableEntityException(
+      'Soroban burn contract is configured but invocation is not yet implemented',
+    );
+  }
+
+  // ---------------------------------------------------------------------------
+  // Step 3 helper: push a job onto the withdrawal queue
+  // ---------------------------------------------------------------------------
+  private async enqueueWithdrawal(params: {
+    merchantId: string;
+    assetCode: string;
+    amount: string;
+    destinationAddress: string;
+    burnTransactionHash: string;
+  }): Promise<string> {
+    const job: WithdrawalJob = {
+      withdrawal_id: crypto.randomUUID(),
+      merchant_id: params.merchantId,
+      asset_code: params.assetCode,
+      amount: params.amount,
+      destination_address: params.destinationAddress,
+      burn_transaction_hash: params.burnTransactionHash,
+      queued_at: new Date().toISOString(),
+    };
+
+    this.withdrawalQueue.push(job);
+
+    // TODO: Replace in-memory queue with a durable message broker:
+    //   - BullMQ (Redis-backed): await this.withdrawalQueue.add('process', job);
+    //   - AWS SQS:               await this.sqsClient.send(new SendMessageCommand({ ... }));
+    //   - RabbitMQ / Kafka:      await this.channel.publish(exchange, routingKey, job);
+
+    return job.withdrawal_id;
+  }
+
+  /** Expose the queue for inspection / testing — will be removed once a real broker is wired in. */
+  getPendingWithdrawals(): WithdrawalJob[] {
+    return [...this.withdrawalQueue];
+  }
+}
diff --git a/apps/api/src/treasury/treasury.controller.ts b/apps/api/src/treasury/treasury.controller.ts
index 65b2d62..4839338 100644
--- a/apps/api/src/treasury/treasury.controller.ts
+++ b/apps/api/src/treasury/treasury.controller.ts
@@ -1,15 +1,19 @@
-import { Controller, Get } from '@nestjs/common';
-import { TreasuryService } from './treasury.service';
+import { Body, Controller, Get, Post, Request } from '@nestjs/common';
+import { RedeemDto, RedeemResponse } from './interfaces/redemption.interface';
 import { ProofOfReservesResponse } from './interfaces/proof-of-reserves.interface';
+import { TreasuryService } from './treasury.service';
+import { RedemptionService } from './redemption.service';
 
 @Controller('treasury')
 export class TreasuryController {
-  constructor(private readonly treasuryService: TreasuryService) {}
+  constructor(
+    private readonly treasuryService: TreasuryService,
+    private readonly redemptionService: RedemptionService,
+  ) {}
 
   @Get('reserves')
   async getProofOfReserves(): Promise<ProofOfReservesResponse> {
     // TODO: Get supported assets from config service
-    // const supportedAssets = await this.configService.getSupportedAssets();
     const supportedAssets = (process.env.SUPPORTED_ASSETS ?? 'USDC,ARS').split(',');
 
     const reserves = await Promise.all(
@@ -22,4 +26,16 @@ export class TreasuryController {
       reserves,
     };
   }
+
+  /**
+   * Redeem mirror assets back to the underlying base currency.
+   * Requires a valid JWT (merchant_id extracted from token).
+   * Body: RedeemDto — asset_code, amount, merchant_wallet, destination_address
+   */
+  @Post('redeem')
+  // eslint-disable-next-line @typescript-eslint/no-explicit-any
+  async redeem(@Request() req: any, @Body() dto: RedeemDto): Promise<RedeemResponse> {
+    const { merchant_id } = req.user as { merchant_id: string };
+    return this.redemptionService.redeem(merchant_id, dto);
+  }
 }
diff --git a/apps/api/src/treasury/treasury.module.ts b/apps/api/src/treasury/treasury.module.ts
index 203b6d5..63c1318 100644
--- a/apps/api/src/treasury/treasury.module.ts
+++ b/apps/api/src/treasury/treasury.module.ts
@@ -1,9 +1,10 @@
 import { Module } from '@nestjs/common';
 import { TreasuryController } from './treasury.controller';
 import { TreasuryService } from './treasury.service';
+import { RedemptionService } from './redemption.service';
 
 @Module({
   controllers: [TreasuryController],
-  providers: [TreasuryService],
+  providers: [TreasuryService, RedemptionService],
 })
 export class TreasuryModule {}