How osToken Works

osToken is created through minting — issuing new osTokens against ETH or GNO staked as collateral in a Vault. A maximum Loan-to-Value (LTV) ratio limits how much osToken can be minted against the stake, keeping every osToken overcollateralized.

The osToken exchange rate is the ratio between the total assets backing osToken and its total supply. It rises as staking rewards accrue, making each osToken worth more of the underlying asset over time.

Redemptions convert osToken back to ETH/GNO at this exchange rate. Used by the protocol to close any gap between the market price and the exchange rate, they keep osToken's market value aligned with its fair value.

If a position becomes thinly collateralized, liquidations act as a last resort to restore its collateralization. When a user wants to exit voluntarily, burning osToken returns it to the Vault and unlocks the underlying stake.

Together, these mechanisms keep osToken safe to hold and use.

Minting

You can get osToken in three ways:

• Stake on the main app page — your ETH is routed through a Meta Vault that distributes deposits across the best-performing Sub-vaults (currently just the Genesis Vault ↗), and osToken is minted against your stake automatically.
• Pick a specific Vault from the marketplace — stake into it, then optionally mint osToken against your stake.
• Buy osToken on a DEX.

How much osToken you can mint against a given stake is capped by the Vault's maximum Loan-to-Value (LTV) ratio.

Only registered Vaults that are collateralized (have active validators) and harvested (rewards synced via the Keeper) can mint osToken. Minting acts as a price-stability mechanism: when osToken trades at a premium, anyone can stake, mint at the protocol rate, and sell — pushing the price back down until the premium clears.

LTV Ratio

The LTV ratio creates a buffer between the collateral and the issued osToken.

Example

With 100 ETH staked in a 90% LTV Vault at 1.05 exchange rate:

• Maximum mintable osToken: 100 × 0.9 ÷ 1.05 = 85.71 osToken
• Overcollateralization: 10 ETH remains as safety buffer

LTV limits vary by Vault type:

Vault Type	Ethereum (osETH)	Gnosis (osGNO)	Safety Mechanism
Standard	90% LTV	90% LTV	10% overcollateralization buffer
DAO-Approved	99.99% LTV	99.95% LTV	5M SWISE operator bond

To qualify for the 99.99% LTV, Vaults must meet strict performance criteria¹ and post a SWISE slashing bond. StakeWise DAO can adjust any individual Vault's LTV based on its risk profile.

LTV is continuously tracked through thresholds that determine position status:

Each minter's position falls into one of four grades — Healthy, Moderate, Risky, Unhealthy — based on how close LTV is to the mint cap and the liquidation threshold. In DAO-approved Vaults these thresholds don't apply.

Exchange Rate

osToken exchange rate is the canonical conversion rate between osToken and the underlying staked asset (ETH or GNO):

exchange rate = total assets backing osToken / total osToken supply

The protocol uses this rate as the single source of truth for every conversion between osToken and the underlying asset.

The rate rises over time as staking rewards accrue. Appreciation is controlled by a single on-chain variable, avgRewardPerSecond, on the OsTokenVaultController. On every state update, the protocol adds new profit to total assets:

profit = avgRewardPerSecond × totalAssets × timeElapsed

A portion of this profit (feePercent) is minted as new osToken to the DAO treasury; the remainder grows the exchange rate for all holders.

Only the Keeper contract — the rewards aggregator for StakeWise's decentralized oracle network — can update avgRewardPerSecond. Off-chain, oracles identify the most exposed user (highest LTV across all Vaults) and match avgRewardPerSecond to that user's Vault APY.

This guarantees osToken appreciation never outpaces the collateral backing it: even the most exposed position grows fast enough to stay solvent. When necessary, oracles adjust avgRewardPerSecond downward so osToken appreciation stays conservative relative to actual collateral performance.

Redemption

Redemptions are the process of converting osToken back to its underlying asset (ETH or GNO) at the protocol exchange rate.

StakeWise manages them through the OsTokenRedeemer contract. Vaults version 1 (mainnet only) retain a permissionless mechanism that's currently disabled.

Managed Redemption

osToken's market price on DEXes can drift from the protocol exchange rate. StakeWise monitors this spread and performs redemptions whenever osToken trades at a discount.

See osToken Redemptions for the exact mechanics.

Permissionless Redemption

When a position's LTV crosses 91.5%, anyone can redeem part of its osToken against its collateral to restore the LTV to 90%.

Formula: Redeemable Amount (90% LTV)

$${\small Redeemable\ osToken = \frac{Minted\ osToken \times Exchange\ Rate - 0.9 \times Staked\ ETH}{0.1 \times Exchange\ Rate}}$$

Derived by solving (Minted − R) × Rate / (Staked − R × Rate) = 0.9, where R is the redeemable osToken amount.

Example: Redemption Above the 91.5% Threshold

Bob stakes 100 ETH and mints 85.714 osToken at an exchange rate of 1.05 ETH/osToken — the 90% LTV cap.

Over time, the exchange rate rises to 1.0687, lifting his LTV:

• Value of minted osToken: 85.714 × 1.0687 ≈ 91.6 ETH
• Loan-to-Value: 91.6 ETH ÷ 100 ETH = 91.6% → above 91.5% threshold

Redemption calculation:

• Redeemable osToken = (85.714 × 1.0687 − 0.9 × 100) ÷ (0.1 × 1.0687) = 1.6 ÷ 0.10687 ≈ 14.97
• The redeemer burns 14.97 osToken and receives 16 ETH from Bob's collateral (14.97 × 1.0687)

After redemption:

• Bob's minted balance: 70.74 osToken
• Bob's staked collateral: 84 ETH
• New LTV: (70.74 × 1.0687) ÷ 84 ETH = 90% (restored to the cap)
• The position shrinks at fair value: the released ETH matches the debt cleared at the protocol exchange rate — no value lost.

Liquidation

Liquidation is the last resort for closing thinly collateralized positions. In 90% LTV Vaults, the liquidation threshold is set to 92% LTV: when a position crosses it, anyone can liquidate part or all of it.

A liquidator burns their own osToken to clear a portion of the staker's debt and receives the underlying value plus a 1% premium, deducted from the staker's collateral.

Formula: Liquidation Payout

$${\small ETH\ Payout = (Burned\ osToken \times Exchange\ Rate) \times 1.01}$$

Example: Full Liquidation at 92.01% LTV

Alice stakes 100 ETH and mints 85.714 osToken at an exchange rate of 1.05 ETH/osToken — the 90% LTV cap.

Over time, the exchange rate rises to 1.0735, lifting her LTV past the 92% liquidation threshold:

• Value of minted osToken: 85.714 × 1.0735 ≈ 92.01 ETH
• Loan-to-Value: 92.01 ETH ÷ 100 ETH = 92.01% → above the 92% threshold

Liquidation (full):

• A liquidator burns 85.714 osToken from their wallet
• ETH payout = (85.714 × 1.0735) × 1.01 ≈ 92.93 ETH, taken from Alice's collateral

After:

• Alice's minted balance: 0 osToken (debt cleared)
• Alice's remaining collateral: 7.07 ETH
• Alice's wallet osToken: unchanged
• Net loss: ~0.92 ETH — the 1% premium on the liquidated debt, deducted from her collateral

Positions in 99.99% LTV Vaults are exempt: liquidations are disabled at the contract level. The exemption is safe because the exchange rate appreciation is capped at those Vaults' APY, so positions stay solvent by design.

Burning

Burning is the process of returning minted osToken to the Vault in exchange for unlocking the staked collateral that backs it.

Users can burn any amount: a full burn clears the entire debt, while partial burns reduce debt, improve LTV, or free up a portion of the stake. Protocol fees accrue automatically into the position over time, so a full burn includes the original mint plus accrued fees. The burn amount is calculated at the current protocol exchange rate.

The amount of ETH that can be unstaked at any moment is determined by maintaining the osToken position within its LTV cap. After unstaking, the value of minted osToken must remain at or below:

• 90% of staked ETH in a 90% LTV Vault
• 99.99% of staked ETH in a 99.99% LTV Vault

The protocol calculates the maximum unstakable ETH as:

Formula: 90% LTV

$${\small MaxUnstakableETH = StakedETH - \dfrac{osTokenMinted \times ExchangeRate}{0.9}}$$

Formula: 99.99% LTV

$${\small MaxUnstakableETH = StakedETH - \dfrac{osTokenMinted \times ExchangeRate}{0.9999}}$$

Example: Bob's 90% LTV Position

Bob stakes 100 ETH and mints 50 osToken at an exchange rate of 1.05 ETH/osToken.

• Value of minted osToken: 50 × 1.05 = 52.5 ETH
• LTV: 52.5 ÷ 100 = 52.5% → safely below 90%
• Maximum unstakable ETH: 100 − (52.5 ÷ 0.9) = 41.667 ETH

After unstaking 41.667 ETH, Bob's LTV = 90%.

Example: Alice's 99.99% LTV Position

Alice stakes 100 ETH and mints 50 osToken at the same 1.05 rate.

• Value of minted osToken: 52.5 ETH
• LTV: 52.5 ÷ 100 = 52.5% → well below 99.99%
• Maximum unstakable ETH: 100 − (52.5 ÷ 0.9999) = 47.495 ETH

After unstaking 47.495 ETH, Alice's LTV = 99.99%.

When a user exits a Vault while still holding osToken debt, the Vault may not have liquid ETH immediately available — validators must go through the Ethereum exit queue. An escrow contract holds the osToken position alongside the underlying stake until ETH is freed, then unwinds both in lockstep. This keeps every osToken fully backed throughout the exit process.

1. DAO-approved Vault requirements: minimum 10,000 ETH staked, maximum 5% Vault fee, consistently above-median network performance, latest Vault version deployed, and 5M SWISE tokens locked as slashing insurance. ↩