Why should ETH/LST holders care?

Capital Efficiency

This is by the most significant benefit of utilizing tapETH - for example:
  1. 1.
    Deposit LSTs and/or ETH into Tapio Finance's liquidity pools, minting tapETH
  2. 2.
    tapETH serves as an LP token, earning top-tier yield from both the underlying staking rewards, as well as fees generated from swaps and redemptions
  3. 3.
    tapETH can then be utilized in downstream applications to further increase yield, such as for example: used as collateral to mint stablecoins against
  4. 4.
    This tapETH is then within the stablecoin protocol, generating the user all it's yield, while also generating any incentives from the the DeFi application itself
  5. 5.
    The minted/borrowed stablecoins then be utilized to further compound yield, whether to leverage the user's position by buying more tapETH (and repeating), or simply exploring completely separate yield opportunities
tapETH is not only the simple LP token you can holder to earn yield, but also can be utilized in DeFi applactions to earn more.

Arbitrage/Trading Opportunities

This is a significant contributor to bolstering swap and redemption volume (assuming LST is pegged with ETH):
  1. 1.
    Tapio's pools are far more forgiving of composition imbalances, which allows users to benefit from favourable exchange rates for far longer (due to the wide pricing curve)
  2. 2.
    Furthermore, once the discounts and premiums are applied to underlying assets - they're far more attractive than typical liquidity pools, which again, will result in greater volume whether it be organically through our dApp or due to prominence within a DEX aggregator like 1inch
  3. 3.
    Also, unlike typical arbitrages that happen within liquidity pools - the methods of realizing gains are multifaceted:
    • Regular swaps between assets due to applied discounts/premiums
    • If an LST is oversupplied and discounted:
      1. 1.
        Mint additional tapETH using ETH (which would be undersupplied) and then swap using a tapETH-ETH pool
      2. 2.
        Redeem tapETH for additional LSTs (due to the discount)
    • If tapETH is mispriced and worth <1 ETH in the open market (with a balanced pool):
      1. 1.
        Standard swap of ETH to tapETH (as tapETH will fundamentally be backed by at least 1:1 worth of ETH assets - since it's a LP token)
      2. 2.
        Redemption of tapETH for ETH (or LSTs) to result in a quick profit
    • If tapETH is worth >1 ETH in the open market (with a balanced pool):
      • Deposit of ETH and/or LSTs to mint tapETH (which will always be 1:1 assuming there are no discounts or premiums applied to the underlying assets at this moment in time)
      • Swap of tapETH to ETH on the open market, resulting in an arbitrage
Example for how the pool get back to balance with arbitrage
  1. 4.
    These resulting swaps and redemption volume as a result of realizing profits during an arbitrage or trading opportunity also obviously generate fees - which are then distributed to tapETH holders, increasing it's yield and APR
While the above only briefly touches on LST (and tapETH) mispricing and depegging, you're able to read more in the How does tapETH maintain a peg? page.