Tapioca Explained: Part 2 - Tokenomics and Flows
The unstoppable omnidollar ecosystem, powered by LayerZero: overview of the flows and tokens of the Tapioca complex mechanism.
Disclaimer: The content presented in this article, along with others, is based on opinions developed by the analysts at Dewhales and does not constitute sponsored content. At Dewhales, we firmly adhere to a transparency-first philosophy, making our wallets openly available to the public through our website or DeBank, and our articles serve as vehicles for self-expression, education, and contribution to the ecosystem.
Dewhales Capital does not provide investment advisory services to the public. Any information should not be taken as investment, accounting, tax or legal advice or as a recommendation to purchase, sell or hold or to pursue any investment style or strategy. The accuracy and appropriateness of the information is not guaranteed by Dewhales Capital.
1. Introduction
2. Tokenomics and types of tokens
Tapioca flow
TAP
twTAP
oTAP
aoTAP
tOFT
mTOFT
USDO
3. Token metrics
4. GitHub
5. Partnerships and intergrations
6. Team
7. Backers
1. Introduction
Dewhales has been eyeing Tapioca for a long time, we were releasing the first part “TapiocaDAO Explained: Part 1 - The Infrastructure” until almost a year ago, in July 2023. As you may have noticed - that rather large article was missing many sections that we usually cover in project researches. The fact is that Tapioca is a complex and multi-layered project that is also continuously working on improving the protocol with new mechanics. And one of the main aspects of this protocol is its extensive tokenomics, which requires a separate review. In addition, there have been many changes in Tapioca during this time. So let's dive into it!
2. Tokenomics and types of tokens
Tapioca flow
As we found out in part 1, Tapioca combines 2 primitives in DeFi - CDP stablecoin and money markets, this protocol took the broken economic model of DeFi and completely reimagined it. Let's see how flow works in Tapioca in general terms, and then move on to look at tokens and their functions:
Bigbang: Supply ETH/LSTs >>> Mint USDO
Singularity: Lend USDO to Singularity vault > Get borrowers 5% minimum fee
Singularity: Lock USDO lending position > Get oTAP emissions.
Exercise oTAP to get TAP
twAML: Lock TAP for twTAP > Get APR in USDO.
Also interesting is that since the first part of this article was published, Tapioca have changed the assets supported for Collateral for Genesis Big Bang Markets. Whereas before there was a focus on the wrapped underlying tokens L1 and LST, the focus is now on LST and ETH, which makes sense since LSDFi and LRTFi are the confident narrative at the moment. Also worth keeping in mind that storage capacity for USDOs will be limited to $50m and filling will be on a FCFS basis.
Otherwise, there is no change: stablecoins are not supported as collateral, as all current stablecoins are either backed by most fiatcoins (FRAX/DAI/GHO), centralised (USDC/USDT) or considered too risky (USDe). And Genesis Big Bang's parameters for releasing Tapioca on the main network are based on recommendations from Chaos Labs.
The Tapioca ecosystem captures fees generated by the use of the Tapioca protocol. All of the listed fees below are distributed to twTAP lockers every epoch in the form of USDO:
Big Bang USDO Creation Fee: 0% - 1% (Variable)
Singularity Loan Origination Fee: 0.5%
Singularity Borrowing Interest: Variable
Big Bang Interest: (Variable, Fixed on ETH Market)
Liquidations: 7.5% (of total reward, from both Singularity & Big Bang)
Flash Mint Fee: 0.001%
Profits from liquidations, mint fees and other sources are received by twTAP holders (more on this below). Once we have an understanding and a picture of flow in front of us - let's dive deeper into the tokens that power Tapioca's components:
TAP
TAP the main token of the protocol. The TAP token utilizes the advanced LayerZero V2 OFT (Omnichain Fungible Token) standard. This enables TAP to be transferred to and from any EVM or non-EVM network using a burn-and-mint model directly through the token contract—eliminating the need for bridges, wrappers, or other intermediaries. New TAP tokens enter circulation exclusively through the redemption of incentive options (oTAP) distributed via the DAO Stock Option (DSO) incentive program. TAP was carefully crafted to be sustainably distributed over a long-term horizon, feature a fixed supply, and have a focus on economic growth with minimal value leakage as the foremost design principals.
twTAP
twTAP, or time-weighted TAP, is the core asset of the Tapioca ecosystem, entitling holders to all ecosystem revenues and governance powers. twTAP is based on twAML (time-weighted average magnitude lock). Unlike traditional governance-wrapped tokens like veCRV, which is a non-transferable ERC-20, twTAP is a transferable ERC-721 token. It is implemented as generative NFTs based on ONFT LayerZero, deriving their attributes from the underlying position.
twTAP lockers each epoch (week) receive USDO from the following sources:
USDO Interest Accrued (Big Bang)
Liquidation Profit Shares (Big Bang + Singularity)
USDO Creation Fees
Flash Mint Fee
These rewards will be distributed every Friday at 5:00pm UTC. Rewards will begin to be distributed to twTAP lockers in the epoch prior to the epoch in which twTAP was locked. twTAP uses the same mechanisms as oTAP , but uses different bounds from 0% to 100% respectively, which are output ratios, instead of 0% and 50% in oTAP , which are discount levels .
oTAP
oTAP is a token that is a call option that allows users to buy TAP at a below-market price oTAP, like twTAP, is a LayerZero ONFT-721 token. It can be obtained for NFT tokens tOLP-XXX, which can be obtained from SGL-L-XXX. So, oTAP is an American-style call option.
American call options can be exercised at any time up until expiry, in comparison to European options which can only be exercised at expiration. To understand what an option is, there are two types of options, a put or the right to sell, and a call or the right to buy.
Users can exercise their oTAP call option(s) to purchase TAP over the counter (OTC) from the Tapioca DAO at the fixed strike price. Lenders with lock positions receive oTAP each week, which grants the holder the ability to capture immediate profit (yield) by selling the redeemed TAP at the current market price, which would be higher than the call option's strike price.
oTAP positions are only obtained by supplying USDO into a Singularity market that is supported by DSO and has an associated Option Gauge, and by locking the "SGL" (shorthand for Singularity) receipt token. These receipts represent the custody of the underlying supplied liquidity in a specific market. Therefore, when the user locks the SGL receipt, the user transfers the storage of the underlying USDO position to the Tapioca protocol for a predetermined period of time selected by the user when creating the lock position.
The DSO, which utilizes oTAP, is a carefully crafted incentive program designed to sustainably stimulate economic growth, maximize return on investment (ROI) from incentive token expenditures, and generate protocol-owned liquidity (POL). We discussed this mechanism in more detail in the previous article about Tapioca.
aoTAP
aoTAP - a token distributed by airdrop and in LBP, has a shorter redemption period for exchange for TAP (48 hours versus a week for oTAP). Like oTAP and twTAP, aoTAP is represented by a LayerZero ONFT-721 and is redeemable 1:1 with TAP. All LBP participants holding an LTAP (this is the version of TAP that participants received after participating in LBP and can exchange 1:1 for TAP) upon completion of the LBP will be eligible to participate in the Option Airdrop , receiving aoTAP in proportion to their share of the LTAP's negotiable reserves, at approximately a 30% ratio.
tOFT
Tapioca Omnichain Fungible Tokens are liquid wrappers for LayerZero OFT Omnichain assets, representing an underlying asset that is not part of the Omnichain. tOFT, or "tAssets," are Omnichain assets strictly backed 1:1 by the underlying asset and used as collateral on Tapioca markets. There are no fees for using tOFTs. However, standard protocol fees apply when tOFTs are used as collateral within the Tapioca ecosystem.
Regarding to the teleportation functions built directly into the tOFT/mTOFT token contracts and the burn-and-mint model, assets can be transferred nearly instantaneously from one network to another, while validators ensure valid delivery. This implementation allows Tapioca to utilize any assets from other networks on the host chain Arbitrum, where Tapioca's main contracts are deployed.
mTOFT
Additionally, Tapioca introduces the concept of mtOFT - Meta tOFT. This is an extension of tOFT used for analogous assets available in multiple networks with fragmented liquidity, such as ETH, which is available in Ethereum L1 and many L2s. Such for example, ETH can be contributed from Arbitrum, Optimism or Ethereum to create mtWETH, which can then be used as collateral. mTOFT has a host network (Arbitrum) and "linked" networks. Unlike tOFT, mTOFT charges a fee for transfers or deployment to and from linked networks.
USDO
USDO is a stablecoin that stands out from most traditional stablecoins because it is implemented as an omnichain token. This is achieved through Tapioca DAO's use of LayerZero technology, making it the first token to utilize the LayerZero OFT V2 superstandard. Consequently, OFT locks PROXYOFTV2 in the source chain and issues it in the destination chain, and during the reverse process, the original tokens are unlocked. Unlike algorithmic stablecoins, USDO is not algorithmic and has a complex structure, differing from both algorithmic stablecoins and those attempting to launch LSDfi protocols, for example.
Big Bang Markets by Tapioca is a market based on Kashi from Boring Crypto, similar to Singularity, which is designed to provide composite credit markets across networks. It operates on Uniswap v3's CLMM, functioning as a concentrated liquidity market maker, which is beneficial when working with stablecoins as it prevents liquidity from being spread too thinly over wide ranges. The peg of USDO is maintained through internal arbitrage mechanisms:
The entire peg maintenance mechanism is based on arbitrage between collateral assets and USDO:
Users can increase their loan position at a lower price (if the price of USDO drops below 1 USD), or other players can start buying USDO at a more favorable price, which also helps balance the price.
If the price of USDO rises above 1 USD, market players can simply sell USDO and make a profit.
Additionally, regulation is supported by the USDO/USDC pair using an AMM. To hedge against price deviations from the $1.00 peg, liquidity will be provided in the 0.05% and 0.3% fee tiers within these ranges to protect against tail risk.
USDO also has external mechanisms for stability management and control. This stablecoin is managed by Chaos Labs, which continuously monitors risks to ensure that USDO remains a secure and transparently audited stable asset pegged to the US dollar.
Therefore, Tapioca aims to provide a significantly higher level of security for the stablecoin compared to the vast majority of other protocols that issue stablecoins in various forms with weaker security guarantees.
3. Token Metrics
100m tokens $TAP. This is a hard cap, all tokens will be distributed within 6 years. Pre-seed valuation $22m, $0.22 per token. Last round valuation $44m, $0.44 per token.
The tokens are distributed as follows:
15% Tapioca Foundation - 12 months cliff, vesting 36 months with linearly unlocked per transaction block
3,5% Early Supporters. Initial unlock on TGE of 6% or 210,000 TAP in total, then vesting for 2 years with linearly unlocked per transaction block
13,5% Supporters. These tokens will be linearly unlocked per transaction block over the course of 18 months starting from Genesis, with an initial unlock of 8% or 1,080,000 TAP in total.
5% will be distributed through LBP
2.5% will be distributed through Airdrops Call Option. There is a very large section devoted to Airdrops in the documentation. Airdrops will be distributed as aoTAP, which will be distributed among different categories of users and can also be bought via LBP at a 30-50% discount. Only unlike oTAPs with a maturity of 1 week, aoTAP will have a maturity period of 48 hours.
52,5% will be utilized in the DAO Share Options (DSO) incentive program.
8% will be held in the Tapioca DAO Treasury. The goal of the Treasuries TAP token holdings is to seed initial liquidity and for the DAO to utilize it at it own direction and discretion.
4. GitHub
According to Tapioca, the protocol contains 13,000 lines of Solidity code and more than 100 contracts - looks pretty powerful. Tapioca’s GitHub has a large number of proprietary repositories - 22 repositories in total, among which there are no forks, and 9 of them have good activity. Still, it's worth considering that part of Tapioca's tech stack is built on LayerZero technologies, including using contracts for ONFT-721 (twTAP, oTAP, aoTAP) and OFT (USDO and TAP). The repositories have fairly sparse readme's, so you'll have to look inside to understand what exactly the repositories are for.
Tapioca-bar is the main repository that hosts the smart contracts at the core of Tapioca.
- The BigBang contract facilitates borrowing and lending, collateral management, interest rate handling, and liquidation processes in a decentralized manner.
- The Singularity contract is similar to the Market and BigBang contracts but has different configurations and objectives. It includes mechanisms for liquidating undercollateralized positions, in addition to handling lending, borrowing, and collateral management.
- The Market contract manages operations in the financial asset market. It encompasses functionalities for borrowing, lending, collateral management, interest rate processing, and liquidation processes.
- The Penrose contract manages and facilitates interactions within the Tapioca DAO ecosystem. It oversees various functions such as asset management, fee collection, staking, and governance. The contract includes features for adding assets, user registration, fee management, and token distribution.
This repository, therefore, contains everything related to the stablecoin USDO, the BigBang CDP (Collateralized Debt Position) contract responsible for issuing and burning USDO, and the Singularity borrowing and lending platform, along with other auxiliary contracts that support these components.
TapiocaZ repository integrates automated market making (AMM), lending, borrowing, collateral management, interest rate calculations, and governance mechanisms.Also this repository contains TOFT, mTOFT contracts that are directly related to LayerZero technology.
Tap-token is the repository that houses the source code for the TAP token. It contains the basic smart contracts, tests, and scripts necessary for deployment, interaction, and validation of the token's functionalities. The contracts in this repository are also connected to the tapioca-bar repository. Also this repository is constantly being updated intensively:
tap-yieldbox repository hosts contracts based on BentoBox v2, aimed at optimizing yield generation strategies for DeFi assets within the TapiocaDAO ecosystem. This project uses smart contracts to automate the yield generation process, interacts with external protocols, and provides mechanisms for community engagement and participation in yield-generating activities.
Tapioca-yieldbox-strategies - this repository contains the source code for the various yield optimisation strategies used in Tap YieldBox. This repository includes key smart contracts that implement yield strategies that interact with Aave, Compound and Uniswap to maximise the yield of deposited assets.The modular and extensible design allows for easy integration of new strategies, ensuring that YieldBox can continually adapt to new opportunities in the DeFi space.
5. Partnerships and intergrations
LayerZero - Tapioca uses Layer Zero technologies at its core, and Tapioca is also the DVN (decentralized verification network) operator for Omnichain's outstanding LayerZero interoperability solution with our own Pearlnet. Pearlnet is Tapioca's proprietary messaging internetwork, based on LayerZero (endpoint) technologies. This is the backbone of Tapioca, as this technology simplifies lending, borrowing and credit utilization across more than 20 different chains.
Chaos Labs - is the first automated, on-chain economic security system enabling crypto protocols to optimize risk management and capital efficiency while protecting user funds. Chaos Labs backed by Coinbase Ventures, Jump, Wintermute, Lightspeed, Samsung Next, Uniswap, Polygon, Castle Island Ventures, Folius Ventures and other established players in the crypto space.
Berachain - through the power of the interoperability standard Layer Zero, Tapioca will soon be available on Berachain's Artio testnet
The Honey Jar is a project from the Berachain ecosystem, which is a Berachain-native community venture studio. They are the creators of Honeycomb, a privilege aggregator for Bera eco-projects, they also incubate projects, do deep business development and have an ever-expanding network of partners, and run the most extensive data studio in the Bera ecosystem.
Among the currently supported chains are Arbitrum, Optimism, Ethereum, and as mentioned above, the recently added Berachain to the testnet. Over time, thanks to LayerZero technology and the introduction of Tapioca's endpoint, new chains will be introduced.
6. Team
Development is being done by a Pearl Labs team, founded by participants from all over the world. The company was founded by tw Matt and Joshua Milko. Pearl Labs has a small team whose members have good experience in the crypto industry and DeFi, especially on the technical side. CTO Sadek Walid Mendi and tw Matt were involved in creating Whitepaper.
twMatt, CEO LinkedIn Twitter: OG since 2014, ex-head of PM at Openbet
Sadek Walid Mendi, CTO LinkedIn GitHub Twitter: According to LinkedIn, Sadek has been working as a coder since 2021. However, he graduated from the CESI Ecole d'Ingénieurs in “Analyste programmeur, Ingénierie informatique” faculty in 2019. Self taught developer with years of experience, have touched various I.T sectors, including mobile, back-end, front-end and devops.He is also the most active contributor in all Tapioca repositories.
Jon Crabb, Design Lead LinkedIn Personal Site Twitter: Worked as Product Designer and Design Lead at Composable Finance and Advaced Blockchain AG since 2021. He has many articles and publications about DeFi, and it is clear that Jon is very immersed in the topic. The first crypto article in his Medium is from 2018. Before that he wrote many articles about UI and UX. However, on his personal page he mentions that he bought his first bitcoin in 2014 and has been in the crypto industry since 2017. He previously worked with Bribe Protocol, Light Protocol, Element Finance.
Jarod Milko, Head Of Operations LinkedIn: In crypto since at least 2018.He has working experience in crypto since at least 2019, when he started working as a researcher and writer at CryptoCurrency, a market data overview and research platform. Prior to that, he worked for the Ontario Ministry of Education and the Leap Education Foundation.
Solidity Dev Lead Ion Cosmin Grigore LinkedIn Like Jon, he has worked at Advanced Blockchain and Composable Finance. Before that, Ion has a lot of experience in software development, since 2012. Taught a course at Udemi "From non-programmer to full stack .NET developer". Overall, the information course is good more because of his teaching experience.
7. Backers
Tapioca is backed by organizations such as Dewhales Capital, Magnus Capital, LayerZero, Fisher8 Capital, PARC Capital, and Jones DAO, as well as individual angels including DCF God, Coinflpcanada (a co-creator of GMX), icebergy (creator of CryptoWhaleBot), CryptoCondom, Noah Seidman, Small Cap Scientist and many more angels.
Also recently, on 14 June, Tapioca completed an LBP with a starting price of $3.52, on which it raised $8.4m in collaboration with Fjord Foundry. An interesting point is that the LBP featured an LTAP rather than a TAP, which users were then able to exchange 1:1 for an LTAP. This split was needed so that users could not preemptively run DAO by deploying the Uniswap V3 TAP/ETH pool.
8. Conclusion
Tapioca at a superficial examination gives a very double impression: to some it seems to be a very difficult to understand magic box, and to others it strongly resembles LST-backed CDP and because of this forms an ambiguous impression. But in fact this protocol is really much more complicated than Lybra, Raft, Prisma and others. The approach itself, even given that Tapioca plans to use LST and LRT, and Lybra had LayerZero technology as part of it, is radically opposite.
Firstly, Tapioca pioneered the use of LayerZero technology for money markets and liquidity pooled stablecoin markets. Secondly, they have created a tokenomics platform that is inherently designed to support a large number of blockchains and is thoughtfully designed to do so. And in addition to that tokenomics is designed as a complex engineering structure with lots of parts, counterweights and restraints. Third, as far as we know, Tapioca currently has no active competitors in the field of protocols for omnichain-stablecoins with fully omnichain tokenomics. The only question that remains is how will the market perceive Tapioca after the rather sensational release of the TAP token?
Tapioca DAO links:
Website | Twitter | Discord | Mirror | GitHub
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