tapETH is a synthetic asset that is minted by depositing ETH and/or LSTs into the tapETH pool - constructed of various stable pools. These stable pools consist of an LST, as well as ETH - and together, serve as the assets which make up tapETH, and also are responsible for it maintaining its peg with native ETH.
An example flow of how an liquidity provider can deposit their LSTs/ETH into Tapio's pools - minting tapETH.
In the above image, a holder would have for example:
When depositing into Tapio Finance, the following would occur.
The 4 rETH and 1 ETH would be deposited into the rETH-ETH pool
The 3 stETH and 2 ETH would be deposited into the stETH-ETH pool
The user could specify which pool to deposit the ETH into, however by default, Tapio would direct the ETH towards the pool that was the most imbalanced - in this case, whichever pool had the least ETH (as a %).
As a result, the user would receive 12~ tapETH due to it being pegged to native ETH (and assuming in this case, there is no discount on the LSTs as a result of withdrawal times and also ignoring the exchange rate for rETH). This would, of course, differ depending on what the compositions are doing, i.e. were an underlying LST become heavily oversupplied, premiums and discounts would be applied accordingly to encourage certain types of behavior to recover either the ratio of underlying assets or to maintain tapETH's peg.
These pools, while separate - are still able to interact with one another, and together - make up the assets that tapETH itself represents.