osToken

Introduction

osToken is a liquid staking token that accrues staking rewards when held. It is a generic name for StakeWise's network-specific ERC-20 tokens:

• osETH on Ethereum
• osGNO on Gnosis Chain

osToken is issued against assets staked in a Vault to allow using staked capital in decentralized applications to trade, borrow, lend, and restake. Hence, osTokens represent the underlying staked assets and the rewards earned.

Short for Overcollateralized Staked Token, osToken requires that the value of staked assets exceed the value of osToken issued. This overcollateralization acts as a safety buffer, protecting holders and the protocol from validator penalties or underperformance of permissionless Vaults.

A defining feature is that osToken can be minted against validators run by anyone – from solo stakers to professional operators – making access to liquid staking fully permissionless and non-custodial.

How osToken Works

osToken turns staked ETH or GNO into liquid, yield-bearing assets. Its operation is governed by four core mechanisms: minting, burning, exchange rate appreciation, and peg maintenance.

Minting

Minting involves staking assets into a Vault and issuing osTokens against staked assets acting as collateral. Minting limits are in place to ensure each issued token is fully backed. These limits are set by the Loan-to-Value (LTV) ratio.

Loan-to-Value Limits

The LTV ratio determines what portion of your stake can be tokenized with osToken:

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

Example

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

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

Minting & Buying Options

osToken can be acquired via four methods:

1. One-click staking – Deposit ETH or GNO through the StakeWise App ↗ to receive osETH or osGNO. No validator setup or Vault selection required.
2. Staking with Vaults – Select a specific Vault (operator, fees, performance). Rewards and penalties are isolated per Vault. Minting capacity is constrained by LTV limits.
3. Solo staking – Operate private validators and mint osTokens against self-staked collateral, retaining full infrastructure control. Minting capacity is constrained by LTV limits.
4. DEX purchase – Acquire osTokens on decentralized exchanges. Tokens have the same exchange-rate appreciation as minted tokens and do not create a Vault position (no LTV or liquidation exposure).

All methods yield the same asset that appreciates through the same exchange rate mechanism.

Deep Dive

More on each staking option's step-by-step instructions in the osToken Staking Guide →.

Position Health

Position health is continuously tracked through LTV thresholds:

Status	LTV Range	Description
Healthy	≤ 90%	Within Vault's safe operating limit
Moderate	(90%, 91%]	Exceeds limit, partial redemption available
Risky	(91%, 92%]	Approaching liquidation threshold
Unhealthy	> 92%	Eligible for liquidation

Quick Tip

[ ] includes value, ( ) excludes value.

Users can maintain healthy positions by keeping LTV well below limits, adding more collateral, or burning osToken. In 99.99% (osETH) / 99.95% (osGNO) Vaults, redemptions and liquidations do not apply, positions remain healthy by design.

Burning

Burning is the process of returning minted osTokens to the Vault in exchange for unlocking the staked collateral that backs them. To fully unstake, a user must burn the entire amount of osTokens they minted, plus any protocol fees accrued.

Partial burns are also possible, allowing users to reduce debt, improve position health, or free up a portion of their stake. The burn amount is calculated using the current fair exchange rate to ensure that the redeemed assets always match the true underlying value of the returned tokens.

The amount of ETH that can be unstaked at any moment is determined by maintaining the osToken position within its healthy Loan-to-Value (LTV) range. After unstaking, the value of minted osETH 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

$${\small MaxUnstakeableETH = StakedETH - \dfrac{osETHMinted \times ExchangeRate}{0.9}}$$

Formula – 99.99% LTV

$${\small MaxUnstakeableETH = StakedETH - \dfrac{osETHMinted \times ExchangeRate}{0.9999}}$$

Example: Bob's 90% LTV Position

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

• Value of minted osETH: 50 × 1.05 = 52.5 ETH
• Position health: 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 position health = 90%

Alice's 99.99% LTV Position

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

• Value of minted osETH: 52.5 ETH
• Position health: 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 position health = 99.99%

Peg Maintenance

osToken maintains a soft peg to its underlying asset (ETH or GNO) through minting, redemptions, and liquidations. Minting helps prevent secondary market premiums on osTokens. Redemption acts as early intervention when positions drift toward risky erosion of collateral, while liquidation serves as the last resort for closing thinly collateralized positions. Together, they create arbitrage opportunities that keep osToken's market price closely aligned with its fair exchange rate.

Redemption Mechanism

In 90% LTV Vaults, the redemption mechanism activates when a position's Loan-to-Value (LTV) reaches the redemption threshold of 91.5%. At this point, anyone can burn part of that position's osTokens in exchange for an equivalent share of the Vault's collateral. The burn amount is calculated so that the position's LTV is restored precisely to 90%. Importantly, the staker whose tokens are redeemed does not lose value – they keep the osTokens burned on their behalf.

Formula: Redeemable Amount (90% LTV)

$${\small Redeemable\ osETH = \frac{10 \times Minted\ osETH - 9 \times Staked\ ETH}{Exchange\ Rate}}$$

Example: Bob's Redemption at 91.6% LTV

Bob stakes 100 ETH and mints 87.238 osETH at an exchange rate of 1.05 ETH/osETH.

• Value of minted osETH: 87.238 × 1.05 = 91.687 ETH
• Loan-to-Value: 91.687 ÷ 100 = 91.6% → above 91.5% threshold

Redemption calculation:

• Redeemable osETH = (10 × 87.238 - 9 × 100) ÷ 1.05 = 15.238
• Redeemer burns 15.238 osETH and receives 16 ETH

After redemption:

• Bob's minted balance: 72 osETH
• Bob's staked collateral: 84 ETH
• New LTV: 90% (restored to safety)
• Bob retains the 15.238 osETH burned on his behalf → no value lost

Positions in 99.99% LTV Vaults are also subject to redemption, with amounts redeemed determined by the protocol's redemption request volume. The LTV of redeemed positions will remain above or equal to 99.99% after redemption, not affecting the position owner in any scenario.

Liquidation Mechanism

Liquidation is the system's final safeguard, closing unhealthy positions to protect overcollateralization. In 90% LTV Vaults, if a position exceeds the 92% LTV liquidation threshold, anyone can close it entirely by burning all minted osTokens against the collateral. The liquidator receives the underlying collateral value plus a 1% liquidation premium, deducted from the staker's collateral as a penalty.

Formula: Liquidation Payout

$${\small ETH\ Payout = (Minted\ osETH \times Exchange\ Rate) \times 1.01}$$

Example: Alice's Liquidation at 92% LTV

Alice stakes 100 ETH and mints 87.629 osETH at an exchange rate of 1.05 ETH/osETH.

• Value of minted osETH: 87.629 × 1.05 = 92.01 ETH
• Loan-to-Value: 92.01 ÷ 100 = 92.01% → above 92% threshold

Liquidation process:

• ETH payout = (87.629 × 1.05) × 1.01 = 92.93 ETH
• Liquidator burns 87.629 osETH and receives 92.93 ETH

After liquidation:

• Alice's minted balance: 0 osETH
• Alice's remaining collateral: 7.07 ETH
• Alice keeps her original 87.629 osETH
• Loss: 1% of collateral as liquidation penalty

Positions in 99.99% LTV Vaults are exempt from liquidation, as their APY parity ensures position health remains stable.

Exchange Rate Appreciation

osToken is a repricing token, meaning its redemption value increases over time as staking rewards accrue. Each osToken represents a growing share of the underlying staked ETH or GNO.

The fair exchange rate is the amount of assets a user can receive when redeeming osToken within the protocol. As rewards accrue, the redemption value increases, creating the "repricing" effect where each osETH becomes worth more ETH over time.

The fair exchange rate is reflected through convertToAssets and convertToShares functions in the osTokenVaultController ↗ contract, which manages osToken supply, collateral, and reward accrual.

Reward Accrual & Fee Mechanism

A decentralized Oracle network uses the VaultUserLtvTracker ↗ contract to identify the user with the highest osToken LTV position across all Vaults. Oracles then set the avgRewardPerSecond parameter to match that user's Vault APY performance. This rate drives the continuous calculation of osToken value appreciation:

Formula: Profit Accrual

$${\small profitAccrued = avgRewardPerSecond \times totalAssets \times timeElapsed}$$

This mechanism ensures that osETH appreciation keeps pace with the least collateralized position in the entire protocol. When necessary, Oracles adjust avgRewardPerSecond downward to prevent any LTV from exceeding 100% due to insufficient Vault performance.

From these rewards, the protocol deducts a 5% fee that increases users' osETH debt—the amount they must burn to fully exit their positions. This fee creates new tokens for the StakeWise DAO Treasury and increases the osETH balance that users owe back to their Vaults. The remaining 95% of rewards increase the backing assets, raising the fair exchange rate for all osToken holders.

Example: Fee Impact

If you minted 1 osToken and after fee collection it increases to 1.000001, your debt grows by 0.000001—your proportional share of the protocol's accumulated fees.

Learn More

For comprehensive information about all protocol fees, see the Fees → chapter.