Introducing tDOT — Unified Standard for Staking and Crowdloan Derivatives

Define DeFi
Tapio Protocol
Published in
6 min readJun 8, 2022

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Super excited to introduce the first synthetic DOT to the Polkadot ecosystem!

tl;dr

tDOT aims to become the synthetic standard for the Polkadot ecosystem by unifying different formats of DOT derivatives to unleash maximum liquidity efficiency through:

  • Extremely efficient stable swap engine for DOT and DOT derivatives (ie. Staking DOT, Crowdloan DOT)
  • Competitive yield relative to market standard (ie. Yield on tDOT > yield on Staking DOT)
  • Highly composable across Parachains and applications (ie. Integrate tDOT on your Parachain or dApp to minimize liquidity fragmentation)
  • Naturally embedded cross Parachain swap mechanism

If you are a building a Parachain or dApp and is looking for unified DOT liquidity, we can certainly help facilitate. Let’s chat!

As new Parachains continue to go live in the Polkadot and Kusama ecosystem, we are witnessing an increasing number of staking and crowdloan derivatives.

Acala — LKSM, LDOT, lcDOT

Bifrost — vKSM, vsKSM, vDOT, vsDOT

Parallel Finance — cKSM, sKSM, cDOT, sDOT

The vibrant selection of derivatives enables increased usability for DOT and KSM. However, it also introduces two major problems for the Polkadot and Kusama ecosystem as a whole:

  1. Liquidity is siloed within an individual Parachain and becomes highly fragmented
  2. Parachains are competing against each other for DOT and KSM liquidity

Tapio & Taiga Protocol is motivated to maximize liquidity efficiency by removing silos caused by DOT and KSM derivatives. We believe introducing a synthetic standard to unify different forms of DOT and KSM liquidity can help realize the multichain vision of Polkadot and Kusama!

What is tDOT?

tDOT is the first synthetic DOT aimed at standardizing different formats of DOT derivatives for increased usability, yield and liquidity efficiency.

tDOT is backed by individual liquidity pools made up of native DOT and DOT derivatives*. tDOT provides a highly stable value peg against native DOT while enabling a high degree of composability with new and existing Parachains and dApps.

tDOT on Acala is currently made up of DOT and staking DOT. It is backed by the DOT-LDOT liquidity pool, which achieves the following:

  • Maintains a stable value peg against DOT powered by the Stable Asset system
  • Maintains the underlying effective yield of LDOT and standardizes the process of yield aggregation and distribution amongst tDOT holders
  • Efficient liquidity for traders to trade between DOT-LDOT

*DOT derivatives will be referenced as xDOT throughout this article

Benefits of tDOT

tDOT enables the standardization of DOT liquidity siloed in staking and crowdloan applications. Furthermore, Parachains with DOT and xDOT liquidity can leverage tDOT and the Stable Asset system to achieve the following benefits:

Parachain Builders

  • DOT-xDOT liquidity is locked in the original Parachain while the minting of tDOT happens on Acala through XCM, enabling Parachains to attain the usability of tDOT without sacrificing TVL
  • tDOT can be used as a cross-chain swap medium. Assume that bDOT is native on Parachain B and cDOT is native on Parachain C. Users can mint tDOT with bDOT on Parachain B and then redeem tDOT to cDOT on Parachain C. This operation has effectively swapped bDOT on Parachain B to cDOT in Parachain C

Liquidity Providers and Holders

  • LPs can enjoy unprecedented and sustainable yield with tDOT. The yield composition of tDOT is made up of 3 different sources: (i) Underlying yield from LDOT (ii) Swap and redemption fees collected from DOT-LDOT liquidity pool (iii) TAP token incentives
  • As demonstrated via our taiKSM implementation, the Stable Asset system proves to be highly efficient in aggregating and distributing yield from the underlying staking assets. This means tDOT holders can enjoy enhanced utility without sacrificing underlying yield from LDOT

Traders

  • DOT-xDOT liquidity pool provides a highly efficient stable swap between DOT and xDOT. Specifically, traders can potentially seek profit from arbitrage opportunities which helps maintain a stable peg between tDOT and DOT. Furthermore, as demonstrated with taiKSM on Karura, the Stable Asset system provides tremendous cost savings for large trades between uniform assets (ie. DOT-LDOT).

Application Builders

  • tDOT minted on Acala can be transferred to any XCM enabled Parachains and it can be integrated into various applications (ie. DeFi, GameFi, privacy, etc.). This allows application builders to support tDOT rather than integrating with different versions of DOT derivatives.

How tDOT Works?

All tDOT will be minted on Acala as it serves as the primary DeFi hub on Polkadot. The Acala ecosystem has an abundance of use cases and economic value for tDOT as it holds a significant amount of Staking DOT and Crowdloan DOT.

The composition of tDOT is designed to support any DOT-xDOT asset pairs. Our plan is to introduce DOT-lcDOT as the next tDOT composition on Acala.

Each DOT-xDOT liquidity pool is a trading pair between DOT and xDOT. It allows a dynamic trading range between DOT and xDOT and also ensures the value of the pooled derivative is pegged to DOT.

Each xDOT represents a different form of 1 DOT in the Polkadot ecosystem (ie. LDOT ~ DOT, lcDOT ~ DOT). According to the Stable Asset algorithm, when the exchange rate between DOT-xDOT trades at 1:1, tDOT is 100% collateralized and is fully backed by 1 DOT.

When the exchange rate shifts, tDOT is over-collateralized and the collateral ratio increases as the exchange rate shifts further. Each DOT-xDOT liquidity pool can control how fast the collateral ratio increases with its own amplification coefficient parameter setting.

Since each DOT-xDOT liquidity pool can maintain peg of its own pooled derivative, it is a natural choice to unify these individual DOT derivative pools into tDOT.

  1. Stable Asset system can be deployed as a Substrate pallet or EVM module across different Parachains
  2. tDOT is backed by DOT-DOT derivative liquidity pools (ie. DOT-LDOT, DOT-lcDOT)
  3. tDOT accrues yield and swap fees from the underlying liquidity pools
  4. tDOT minter function is deployed on Acala, which serves as the hub for minting tDOT
  5. XCM enables the transfer of tDOT across Parachains

How to Mint and Use tDOT?

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Resources

What is Taiga Protocol

taiKSM Triple Threat

taiKSM Video Tutorial

Ambassador Program

Taiga dApp

User Guides

About Tapio & Taiga

Tapio is a synthetic asset protocol enabling efficient liquidity for staking, crowdloan and uniform assets. It is designed to remove liquidity silos by synthesizing different formats of derivatives into a highly usable synthetic asset on Polkadot. Taiga is the mirror implementation of Tapio on Kusama.

Tapio officially started in early 2021 when we received our first Web3 Foundation Open Grant. We are also the inaugural recipient for the Acala Ecosystem Grant. Our team is composed of engineers, financiers, security experts and serial entrepreneurs based in Canada, China and U.S.

Website | Twitter | Discord | Telegram | Github | Wiki | Gitbook | dApp

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