Tapioca DAO Review: An Omnichain Money Market Helps Users Extend Multi-Chain Exposure
Tapioca is a DAO providing lending/borrowing protocol on. LayerZero. It offers users the ability to take loans against many different assets, which can be settled to (and from) any chain. The protocol is managed by the vote-escrowed veTAP token, which enables holders to participate in governance and share in fee revenues. Let’s learn details about this project with Coincu through this Tapioca DAO Review article.
Tapioca DAO will allow users to lend and borrow across 12+ EVM and non-EVM blockchains.
Its core products are Singularity and Yield Box:
- Singularity is an independent risky lending marketplace (based on Sushiswap’s Kashi product).
- Yield Box (BentoBox V2) is a permissionless token vault.
Tapioca will also provide the ability to mint “usd0”, a decentralized over-collateralized omnichain stablecoin.
It will leverage LayerZero’s technology to achieve cross-chain composability without cross-chain bridges. Now, the Tapioca DAO Review article will learn about the core products of the project.
Licensed from BoringCrypto to Tapioca, Singularity was created to provide composable lending markets across a variety of networks designed to solve fragmented liquidity problems.
Singularity’s markets are siled, so riskier assets can be used as collateral with flexible rates to increase usage. For example, if the utilization rate of ETH borrowing is low, the interest rate will decrease until the optimal utilization level is reached. Users can also use leverage (up to 5x).
Big Bang (usd0)
Big Bang allows users to mint an omnichain stablecoin called usd0. It has no borrowing ceiling but a debt ceiling. The collateral that the program accepts for minting usd0 is the native Gas token (or its staked derivative). These include ETH, MATIC, AVAX, wstETH, rETH, stMATIC, and sAVAX.
Minting usd0 with ETH will have a fixed rate of 0.5%, and ETH is the ideal collateral. Other collateral types will have a debt ratio against ETH with a variable interest rate. For example, if the debt ratio of AVAX to ETH is 1:2 (assuming $100 million in ETH is issued), the potential debt of AVAX will be as high as 50 million. AVAX’s interest rates will be based on utilization and vary between 0.5% and 3%. If the 50 million AVAX debt is taken out, the interest rate will climb to a maximum of 3%.
Every interest rate parameter of the Big Bang market can be set through governance. Tapioca also provides something called Hook Protected Mode. This feature doubles the interest rate on at-risk collateral in specified markets every 72 hours, up to a maximum of 10%, or until lapsed. This is used to encourage borrowers to repay their debts to mitigate risk.
Flash mints are also available for usd0 for a fee of 0.001%. Similar to Aave’s Flash Loans, this feature can be used to increase market efficiency and arbitrage opportunities for usd0.
Yield Box is a token vault product where users can deposit tokens to generate yield. It provides risk isolation strategies and has the ability to support NFT and rebase tokens. It can automatically rebalance funds on multiple chains (such as Aave lending on the ETH mainnet, Arbiturm or Optimism). Initially, the feature will only offer low-risk strategies. In the future, however, Tapioca plans to offer medium and high-risk strategies.
TAP is a liquid tradable token that can only be obtained through the DAO Share Options program or on the open market, with a maximum supply of 100 million tokens and is distributed in the following ways:
- 15% of which are allocated to the team, locked for 12 months, and unlocked linearly within 36 months;
- 11% allocated to investors;
- 5% is allocated to the liquidity guidance fund pool;
- 2.5% for airdrops;
- 66.5% is allocated to DAO.
The DAO Shares Option Program (oTAP)
The DAO Shares Option Program is Tapioca’s mechanism to incentivize liquidity and sustainable growth of the protocol. It utilizes the mechanics of an American call option (they call it ‘oTAP’).
A simplified example of how it works: users deposit liquidity into the lending market and receive a receipt token called ‘tOLP.’ They can lock this receipt (representing their liquidity) for a set period of their choice. Based on Tapioca’s AML (Average Magnitude Lock – more on that later) formula, a discount factor is applied to the receipt, which is valid for the entire lock period.
At the end of each period (approximately one week), users receive oTAP with a specified strike price. Users have the right, but not the obligation, to purchase TAP at this strike price. The price is determined by the following formula: execution price = spot price – X%, X% = discount factor.
The oTAP is valid for one week and can be exercised at any time. Upon expiration, any unexercised oTAP becomes worthless. The amount of oTAP issued to users is based on their percentage share in the market, which may be dynamic and change between periods. The discount is fixed and based on an average magnitude locking formula ranging from 5-50%.
The system benefits both users and protocols. Users can choose to buy TAP at a discounted price and sell it for a profit, or lock TAP into twTAP (which has other benefits). As an off-market seller of DAO’s TAP, the protocol obtains the liquidity owned by the protocol.
The twAML mechanism (Time Weighted Average Magnitude Locking) has been carefully designed to enable the protocol to adjust incentives when needed. For example, during periods of protocol decline (e.g., fewer users providing liquidity to the market or locking their TAP), AML can be adjusted. oTAP for more discounts, or get more locked twTAP for a shorter lockup period.
Instead, during peak times, the opposite can be done (less oTAP discounts or less twTAP earned through lock-in).
What is twTAP?
twTAP stands for “Time Weighted TAP.” It is obtained by locking TAP. Locked users are rewarded in tETH (more details on tETH below) every epoch.
The agreement distributes 100% of revenue and 50% of Arrakis vault earnings to twTAP lockers.
twTAP is also used for governance and can influence oTAP incentives distributed through voting.
Similar to the above discount factors, the amount of twTAP allocated is based on the twAML mechanism. As more twTAP is locked, it will take more TAP or longer to get the same amount of twTAP as before.
usd0 – omichain stablecoin
usd0 is a decentralized CDP pegged to $1.00. usd0 supports composable across blockchain composition with no cross-chain bridges, slippage or waiting time. It is only minted in Big Bang Markets, and the protocol has liquidity managed in Uniswap V3.
Tapioca employs variable borrowing fees to encourage arbitrageurs to stay pegged. For example, if usd0 climbs to $1.02, the borrowing fee is set to 0%. If it drops to $0.98, the fee becomes 1%. When usd0 = $1.00, the target minting fee is set to 0.5%. The loan-to-value ratio (LTV) for each type of collateral is shown below.
tETH and tAssets – OFT20 Standard
All Tapioca assets are liquid omnichain-wrapped assets based on Layer Zero’s OFT20 standard. They are 1:1-backed assets that can move freely on-chain through a burn and mint mechanism.
tETH is a wrapped version of Arbitrum ETH, Mainnet ETH, and Optimism ETH. Users can wrap ETH on any of these chains and earn tETH, which can be easily transferred and used as collateral on the Tapioca marketplace.
Various other tAssets are also planned, such as tGLP, DopexLP, Sushi SLP, Arrakis LP, rETH, stMatic, etc., without cross-chain bridge fees and fees.
Source of income
Tapioca has 4 revenue streams:
- Initial liquidity guide fund pool
5 million TAP (5% of supply) tentatively scheduled for sale on 3/23/23. The initial starting price was $3.52, and the final price was calculated at $0.88, which is 4 times lower. The open market and supply/demand will determine the final price. It is likely to trade below $0.88 or above $3.52. Proceeds will be used for initial liquidity and to assist in price discovery.
- DAO stock options
The DAO sells TAP to users, and the proceeds will be used to deepen the liquidity owned by the protocol.
- Agreement fee
Borrowing Fee = 0.5%
Interest = 0.5% (variable, except ETH/USD0 market)
Liquidation = 10%
Performance = 15%
Flashmint = 0.001%
- Arrakis Vault
Tapioca DAO is using Arrakis to manage protocol-owned liquidity on Uniswap V3. 50% of fees earned will be credited to the twTAP account.
2.5 million TAP supply (2.5%) will be airdropped in the form of oTAP. Of these, 1.5 million will be provided to participants in the liquidity bootstrap pool. The earlier a user enters LBP, the higher the discount on oTAP call options.
The ratio of airdrop distribution will be 10:3, which means that if a user buys 10,000 TAP in LBP, they will receive 3,000 OTAP in the form of the airdrop. The exercise price is based on the final LBP price, and the discount factor is valid for 72 hours.
Discount factor level:
- User purchases TAP starting at $3.52: 50%
- $3.51 – $3.00: 33%
- $2.99 – $2.50: 25%
- $2.50 – $2.00: 10%.
Any TAP purchased for less than $2.00 is not eligible for the oTAP airdrop.
The remaining oTAP will be distributed to Discord members (OG and below) at various discounts, as well as Pearl Club NFT holders who are beta testers.
Conclusion of Tapioca DAO Review
Tapioca DAO is building one of the most interesting projects to date. An omnichain money market that is fully composable across multiple blockchains without the hassle, slippage, or risk of bridging assets. They have carefully curated token economics that accrues value for holders in a sustainable manner. The scope of this project is huge, but the attention to detail shown by the team leads me to believe they have a good chance of success. Hopefully the article Tapioca DAO Review has helped you understand more about the project.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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