How osToken Works

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

As the staked collateral accrues rewards, each osToken is worth more ETH or GNO over time. This appreciation is tracked by the osToken exchange rate — the protocol-calculated conversion rate between osToken and the underlying asset. This rate is osToken's fair value: what one osToken is genuinely worth at any moment.

On the open market, osToken's price can drift from this fair value, but the protocol keeps it soft-pegged to the exchange rate from both sides:

• When osToken trades at a premium, anyone can stake, mint at the protocol rate, and sell, pushing the price back down.
• When it trades at a discount, redemptions convert osToken back to ETH or GNO at the exchange rate, pushing the price back up.

The protocol keeps every position collateralized: if a rising exchange rate pushes its LTV too high, liquidations restore healthy collateralization as a last resort.

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

How to Get osToken

There are three ways to get osToken:

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

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	100% LTV	99.95% LTV	5M SWISE operator bond

To qualify for the 100% LTV, Vaults must meet strict performance criteria¹ and post a SWISE operator bond. StakeWise DAO can adjust any individual Vault's LTV based on its risk profile.

The protocol continuously tracks each position's LTV against the liquidation threshold and puts it into one of four grades — Healthy, Moderate, Risky, and Unhealthy. A Risky position is subject to redemption; an Unhealthy one to liquidation. These grades don't apply in DAO-approved Vaults.

Exchange Rate

The osToken exchange rate is the protocol-calculated conversion rate between osToken and its underlying staked asset (ETH or GNO).

The OsTokenVaultController ↗ contract keeps two running totals: the total osToken supply (totalShares) and the total assets backing it (totalAssets). The exchange rate is the ratio between them:

exchangeRate = totalAssets ÷ totalShares

This is what the contract computes whenever it converts between osToken and the underlying asset (convertToAssets), so one osToken is always worth totalAssets ÷ totalShares of ETH or GNO.

The rate rises as staking rewards accrue. On each state update, the protocol adds the newly accrued profit to totalAssets, at a pace set by the avgRewardPerSecond variable:

profit = avgRewardPerSecond × totalAssets × timeElapsed

Because the osToken supply (totalShares) doesn't grow with it, the same number of tokens is backed by more assets, so each osToken is worth more. 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 DAO-approved 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.

Redemption

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

StakeWise manages redemptions 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

This mechanism exists only on Version 1 Vaults (mainnet) and is currently disabled. The description below covers how it works when active.

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, with 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 100% 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, and 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 full stake can only be withdrawn once the osToken position is fully burned. While any osToken remains minted, the Vault keeps enough ETH locked to back it, so only part of the stake can be unstaked.

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
• 100% of staked ETH in a 100% LTV Vault

The protocol calculates the maximum unstakable ETH as:

Formula: 90% LTV

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

Formula: 100% LTV

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

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 100% 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 100%
• Maximum unstakable ETH: 100 − 52.5 = 47.5 ETH

After unstaking 47.5 ETH, Alice's LTV = 100%.

When a user exits a Vault while still holding osToken debt, the Vault may not have liquid ETH immediately available, since 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. ↩