Maintain the stability of holding native ETH, and simultaneously have exposure to LST staking yield and protocol fees.
What is tapETH?
tapETH is a rebasing LP token designed to standardize LST liquidity into a single asset for increased utility, yield, and capital efficiency.
It can be minted by depositing LSTs and/or native ETH into individual liquidity pools (such as stETH-ETH, rETH-ETH, and so on), which also back it and serve as it’s collateralization. Tapio's pools promise extremely low slippage and price impact - making them the go-to when swapping between LSTs or ETH.
tapETH serves as a stable peg against the native ETH, and also standardizes the method of yield accumulation and reward distribution of different formats of LSTs for tapETH holders, by rebasing.
The mechanism of tapETH rebase model is based on shares. The share is a basic unit representing the tapETH holder’s share in the total amount of tapETH controlled by the protocol. Shares aren’t normalized, so the contract should store the sum of all shares to calculate each account’s tapETH balance :
where totalSupply is the total Supply of tapETH that reflects the sum of amount of tapETH minted/burned from user deposits/withdrawals and collected staking rewards and fee in tapETH.
tapETH rebases happen when the user interacts with Tapio and it is always positive. Indeed, it consists in increasing the totalSupply of tapETH by the staking rewards, mint, swap and redeem fee from the different pools.
tapETH is backed by Tapio's "Stable Asset" architecture, which not only enables high-efficiency swaps between underlying assets, but also dynamically maintains and adjusts the composition of the individual pools to ensure a highly stable peg against ETH.
A liquidity provider would deposit their LSTs and/or ETH into Tapio's pools as normal - but rather than receiving an LP share, it would instead mint tapETH which is not only able to be redeemed for the underlying assets, but also used within DeFi just as any other asset (while also being pegged to ETH).
Now, due to the rebasing nature of tapETH, the tapETH balance on the holder’s address is not constant, it changes dynamically as staking and fee comes in. Although rebasable tokens are becoming a common thing in DeFi recently, many dApps do not support rebasing such as Maker, UniSwap, and SushiSwap are not designed for rebasable tokens. Listing tapETH on these dApps can result in holders not receiving their daily staking rewards which effectively defeats the benefits of tapETH. To integrate with such dApps, wtapETH (wrapped tapETH) is introduced. wtapETH is mainly used as a layer of compatibility to integrate WtapETH into other DeFi protocols, that do not support rebasable tokens, especially bridges to L2s and other chains, as rebases don’t work for bridged assets by default. wtapETH balance is constant, while the token increases in value eventually (denominated in tapETH). At any time, any amount of tapETH can be converted to WtapETH via a trustless wrapper and vice versa.
What is wtapETH?
wtapETH is an ERC20 token that represents the account’s share of the tapETH total supply (tapETH token wrapper with static balances: 1 wei in shares equals to 1 wei in balance). wtapETH balance does not rebase, it can only be changed upon transfers, minting, and burning. At any time, anyone holding wtapETH can convert any amount of it to tapETH at a fixed rate, and vice versa.
let amountIn be the amount of tapETH to be converted to amountOut of wtapETH. Then, amountOut is given by:
When wrapping tapETH to wtapETH, the desired amount of tapETH is locked on the WtapETH contract balance, and wtapETH is minted according to the share formula. When unwrapping, wtapETH gets burnt and the corresponding amount of tapETH gets unlocked. Thus, the amount of tapETH unlocked when unwrapping is different from what has been initially wrapped (given a rebase happened between wrapping and unwrapping wtapETH).
What do the rewards look like?
tapETH and wtapETH, while a sophisticated LP token of sorts, can be utilized just like any other asset within crypto - able to be bridged to other networks, borrowed and lent, leverage traded using perpetual and pretty much any other DeFi primitive you could think of.
However, users are able to hold tapETH just like they would an LST and enjoy high APR on their ETH, which is entirely real yield, which would include the following:
Staking Rewards: The rewards that are generated by the underlying LSTs within the tapETH pools, are collected by Tapio, and converted into tapETH and distributed to holders based on the rebase model of tapETH.
Swap Fees: Tapio's pools enable low slippage swaps between not only LSTs and ETH, but also between LSTs. Moroever, Tapio's pool can also be integrated into various DeFi protocols that require LST liquidity and swap functionality. The fees generated by swaps are then collected to be converted into tapETH and distributed to holders
Redemption Fees: While tapETH has no fees for minting/depositing ETH/LSTs, there is however a fee for redeeming i.e. converting your tapETH back into ETH, or any combination of LSTs. This fee (like the Swap Fee) will be able to be adjusted by the community once our governance module goes live. The redemption feeas are converted too to tapETH to be distributed to holders.