Shares Tokens (sTokens)
When you deposit a token asset into a silo, your deposit is represented by an ERC-20 token asset known as Shares Tokens or sToken for short. sTokens are your claim on the your deposited funds are minted on deposit and burned on withdrawal.
There are 2 different deposits you can make and hence 2 possible sTokens:
Borrowable Deposit: A deposit that can be borrowed by other users.
Protected Deposit: A deposit that cannot be borrowed by other users.
Deposits
When you deposit an asset into a silo, you can decide whether it is borrowable by other users, with borrowable deposit being the default position.
Since there are two options for deposits, there are two distinct ERC-20 token assets that could represent your deposit.
When toggled on, your deposit can be borrowed by other users. You will earn interest for your deposit.
When toggled off, this does not allow your deposit to be borrowed by other users. You will NOT earn interest for your deposit.
You can have both a Borrowable Deposit and a Protected Deposit for the same asset in the same silo at the same time.
The UI will indicated that the Protected Deposit position has Lending Deactivated whilst the Borrowable Deposit will show the current APY.
Borrowable Deposits
Borrowable Deposits (Non-Bridge Asset)
Borrowable deposits can be lent out to borrowers and therefore accrue interest over time based on the lending interest rate.
Borrowable deposits are represented by sTokens. If you deposit LINK you will receive sLINK whilst if you deposit UNI you will receive sUNI.
Borrowable Deposit (Bridge Asset)
Since the bridge asset (ETH) can be deposited into any silo, sTokens follows a slightly different naming convention to denote the name of the silo where the bridge asset is deposited into.
Bridge deposit sTokens will follow a sBridge-ABC naming convention, with the Bridge indicating the bridge asset deposited and ABC indicating the silo it has been deposited into.
If you deposit ETH (bridge asset) into the UNI Silo, you will receive sWETH-UNI tokens that represent your ETH deposits in the UNI Silo.
Interest and Redemption
sTokens are minted for you when you deposit a token asset. You can think of sTokens as your claim on your deposit. However, when other users borrow your deposit, your sTokens accrue interest and therefore increase in value (not amount) over a period of time. Because of the value increase, 1 sToken can be redeemed for more than 1 Token, accounting for the interest your deposit has accrued.
sTokens are standard ERC-20 tokens and can be transferred to other wallets. Note that it is the sToken rather than the original deposit address that will accrue interest. In addition, only the holder of the sToken can claim the underlying assets so do not send it to addresses you do not control.
Protected Deposits
If a user does not want their deposit to be loaned out, they can choose to do a protected deposit instead. The naming convention for protected deposits is the same as for borrowable deposits but with spTokens rather than sTokens, with the sp prefix indicating it is protected from borrowing.
Protected Deposits (Non-Bridge Assets)
Protected deposits cannot be lent out to borrowers and therefore do not accrue interest over time.
Protected deposits are represented by spTokens. If you deposit LINK you will receive spLINK whilst if you deposit UNI you will receive spUNI.
Protected Deposits (Bridge Assets)
Bridge asset protected deposits will give the depositor spBridge-ABC Tokens, they will be issued with spBridge-ABC Tokens.
If you do a protected deposit of ETH (bridge asset) into the UNI Silo you will receive spWETH-UNI Tokens.
Interest and Redemption
Since spTokens are not lent to borrowers, they will not accrue interest and thus a user's value of spTokens will not increase over time. When a lender wishes to withdraw their deposit, their spTokens are burned and the user receive an equal number of Tokens.
sTokens are standard ERC-20 tokens and can be transferred to other wallets. Only the holder of the sToken can claim the underlying assets so do not send it to addresses you do not control.
Why have Protected Deposits?
Some users, such as DAOs, prefer making Protected deposits because it provides a safe method to obtain a loan without making a large number of tokens available for others to borrow.
Governance Attacks
Tokens with voting power can be borrowed and used to vote on proposals that might not be favored by the wider community. Protected deposits allow DAOs to prevent parties from accruing a large sum of their tokens which can be used to pass malicious proposals.
Cascading Liquidations
Borrowable deposits inherently allow traders to create short positions on tokens. Cascading liquidations in tokens such as $OHM and $TIME in the past had a significant impact on the price of these tokens and resulted in the loss of many users’ funds due to liquidation penalties. Protected deposits allow DAOs and users alike to build lending markets for token assets without exposing them to the risk of shorting.
For average users that want to earn interest on their deposits, it is recommended that they use standard borrowable deposits.
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