Written by: Tapioca DAO

Compiled by: TechFlow

Tapioca DAO will allow users to lend and borrow across more than 12 EVM and non-EVM blockchains. Its core products are Singularity and Yield Box. Singularity is an independent risk lending market (based on Sushiswap's Kashi product). Yield Box (BentoBox V2) is a permissionless token vault. It will also provide the ability to mint "usd0", a decentralized over-collateralized full-chain stablecoin. Tapioca will leverage LayerZero's technology to achieve cross-chain composability without the need for a cross-chain bridge.

Core Products

Singularity

Licensed from BoringCrypto to Tapioca, Singularity was created to provide composable lending markets across various networks. It aims to solve the fragmented liquidity problem. Singularity's markets are isolated, so riskier assets can be used as collateral, and elastic interest rates are applied to increase utilization. For example, if utilization of ETH borrowing is low, the interest rate will decrease until it reaches the optimal utilization level. Users can also use leverage (up to 5x).

 

 

Big Bang（usd0）

Big Bang allows users to mint a full-chain stablecoin called usd0. It has no borrowing limit, but there is a debt limit. The collateral accepted for minting usd0 is the native Gas token (or its staked derivatives). These include ETH, MATIC, AVAX, wstETH, rETH, stMATIC, and sAVAX.

 

Minting USD0 with ETH will have a fixed interest rate of 0.5%, with ETH being the most ideal collateral. Other collateral types will have a debt ratio against ETH and a variable interest rate. For example, if AVAX has a debt ratio of 1:2 to ETH (assuming $100 million is issued in ETH), the potential debt of AVAX will be as high as 50 million. The interest rate of AVAX will be based on utilization and vary between 0.5% and 3%. If 50 million of AVAX debt is taken out, the interest rate will climb to a maximum of 3%.

 

Every interest rate parameter for the Big Bang market can be set through governance. Tapioca also offers something called peg protection mode. This feature doubles the interest rate on risky collateral in a given market every 72 hours, up to 10%, or until it expires. This is used to encourage borrowers to repay their debts to mitigate risk.

 

Flash mints are also available for usd0 with 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

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 NFTs and Rebase tokens. It can automatically rebalance funds on multiple chains (such as Aave lending on the ETH mainnet, Arbiturm or Optimism). At the beginning, the feature will only provide low-risk strategies. However, in the future, Tapioca plans to provide medium and high-risk strategies.

 

 

 

TAP Token

TAP is a liquid tradable token that can only be obtained through the DAO Share Options program or on the open market. The maximum supply is 100 million and is distributed in the following ways:

Of this, 15% is allocated to the team, locked for 12 months and unlocked linearly within 36 months; 11% is allocated to investors; 5% is allocated to the liquidity bootstrap fund pool; 2.5% is used for airdrops; and 66.5% is allocated to the DAO.

 

 

 

DAO Stock Option Plan (oTAP)

The DAO Stock Option Program is Tapioca’s mechanism for incentivizing liquidity and sustainable growth of the protocol. It utilizes the mechanism of an American call option (which they call ‘oTAP’).

 

A simplified example of how this 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 choosing. Based on Tapioca's AML (Average Amplitude Locked - more on this later) formula, a discount factor is applied to this receipt that is valid for the entire lock-up 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: Strike Price = Spot Price - X%, X% = Discount Factor.

 

oTAPs have an expiry period of one week and can be exercised at any time. Upon expiry, any unexercised oTAPs become worthless. The amount of oTAPs issued to a user is based on their percentage share of the market, which may be dynamic and vary between periods. Discounts are fixed and are based on an average amplitude lock formula, ranging between 5-50%.

 

This system benefits both users and protocols. Users can choose to buy TAP at a discount and sell for a profit, or lock TAP into twTAP (which has other benefits). The protocol acts as an OTC seller of TAP for the DAO, gaining access to the protocol’s own liquidity.

 

 

The twAML mechanism (Time Weighted Average Amplitude Lock) is carefully designed to allow 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 up their TAP), AML can be adjusted to give more discounts on oTAP, or to get more locked twTAP for a shorter lockup period.

 

Conversely, during peak periods, the opposite can be done (reducing the discount on oTAP, or reducing the twTAP obtained through locking).

 

 

What is twTAP?

twTAP stands for "time-weighted TAP." It is earned by locking TAP. Users who lock TAP receive rewards paid in tETH (more details on tETH below) every epoch. The protocol distributes 100% of revenue and 50% of Arrakis vault earnings to twTAP lockers. twTAP is also used for governance and can influence the oTAP incentives distributed through voting. Similar to the discount factor above, the amount of twTAP allocated is based on the twAML mechanism. As more twTAP is locked, it will take more TAP or longer time to get the same amount of twTAP as before.

 

 

usd0 - full-chain stablecoin

USD0 is a decentralized CDP pegged to $1.00. USD0 supports full cross-blockchain composition with no cross-chain bridges, slippage, or wait times. It is minted only in Big Bang Markets, and the protocol has liquidity managed in Uniswap V3. Tapioca uses variable borrowing fees to encourage arbitrageurs to maintain the peg. 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 collateral is shown below.

 

 

 

tETH and tAssets - OFT20 Standard

All Tapioca assets are liquid full-chain wrapped assets based on Layer Zero’s OFT20 standard. They are 1:1 backed assets that can be freely moved on-chain through burning and minting mechanisms.

 

tETH is a wrapped version of Arbitrum ETH, Mainnet ETH, and Optimism ETH. Users can wrap ETH on any of these chains and get tETH, which can be easily transferred and used as collateral on the Tapioca market.

 

Various other tAssets are also planned, such as tGLP, DopexLP, Sushi SLP, Arrakis LP, rETH, stMatic, etc., and there will be no cross-chain bridge fees and charges.

 

 

Source of income

Tapioca has 4 sources of income:

 

1. Initial liquidity guides the funding pool

5 million TAP (5% of supply) are tentatively scheduled to be sold on 3/23/23. The initial starting price is $3.52, and the final price is calculated to be $0.88, 4 times lower. The open market and supply/demand will determine the final price. It has the potential to be lower than $0.88 or higher than $3.52. The proceeds will be used for initial liquidity and to assist with price discovery.

 

2. DAO Stock Options

The DAO sells TAP to users, and the proceeds are used to deepen the liquidity owned by the protocol.

 

3. Agreement Fees

  • Borrowing fee = 0.5%

  • Interest = 0.5% (variable, except for ETH/USD0 market)

  • Liquidation = 10%

  • Performance = 15%

  • Flashmint = 0.001%

 

4. 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.

 

 

oTAP Airdrop

2.5 million of TAP supply (2.5%) will be airdropped in the form of oTAP. 1.5 million of this will be provided to participants in the liquidity bootstrapping pool. The sooner users enter the LBP, the higher the discount on oTAP call options.

 

The airdrop allocation will be 10:3, meaning if a user purchased 10,000 TAP in LBP, they will receive 3,000 OTAP in the form of an airdrop. The exercise price is based on the final LBP price and the discount factor. The validity period is 72 hours.

Discount factor levels:

  • [User buys TAP at starting price $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 USD is not eligible for the oTAP airdrop.

The remaining oTAP will be distributed at various discounts to Discord members (OG and below), as well as Pearl Club NFT holders, who are beta testers.

Summarize

Tapioca DAO is building one of the most interesting projects to date. A full-chain money market that is fully composable across multiple blockchains with no hassles, slippage, or risk of bridging assets. They have carefully curated token economics that accrue value to holders in a sustainable manner. The scope of this project is large, but the attention to detail shown by the team makes me believe they have a great chance of success.

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