Savings Token (e.g., sDAI)

A rebasing token automatically increases the holder's token balance to reflect accrued interest. The token's exchange rate to its underlying asset (e.g., DAI) remains constant at 1:1, while the quantity of tokens in each wallet grows. This mechanism is used by tokens like sDAI and sUSDe.

• Example: Holding 100 sDAI might become 100.01 sDAI after a rebase, representing interest earned.
• Transparency: Accrual is visible directly in the user's wallet balance.

A non-rebasing token accrues yield through an increasing exchange rate against its underlying asset. The holder's token quantity stays the same, but each token becomes redeemable for more of the underlying asset over time. This is the model used by aTokens (Aave) and cTokens (Compound).

• Example: 100 cDAI might always be 100 cDAI, but its redeemable value in DAI increases.
• Simplicity: Easier for integrations as balances are static.

Savings tokens are ERC-20 tokens, making them natively compatible with the broader DeFi ecosystem. This composability allows them to be used as collateral, swapped in liquidity pools, or integrated into more complex strategies.

• Use Cases: Used as collateral in lending protocols, deposited in yield aggregators, or provided as liquidity in Automated Market Makers (AMMs).
• Efficiency: Enables "yield stacking" where interest is earned on interest-bearing assets.

The interest generated by a savings token originates from the productive use of its underlying assets. Common sources include:

• Lending Markets: Assets are supplied to protocols like Aave and Compound, earning interest from borrowers.
• Staking: Assets are staked in proof-of-stake networks or liquid staking protocols.
• Treasury Management: Protocols like MakerDAO invest surplus assets (e.g., DAI) into low-risk yield-generating instruments.

While abstracting yield, savings tokens inherit and introduce specific risks:

• Smart Contract Risk: Vulnerability in the underlying protocol or wrapper contract.
• Underlying Asset Risk: Depegging or failure of the base asset (e.g., stablecoin).
• Protocol Risk: Insolvency or failure of the yield-generating protocol.
• Liquidity Risk: Potential difficulty redeeming the token for its underlying asset at the expected rate during market stress.

sDAI (Savings DAI): A rebasing token representing DAI deposited in MakerDAO's DSR (Dai Savings Rate). It accrues yield from Maker's treasury revenue.

aDAI (Aave DAI): A non-rebasing aToken representing DAI supplied to the Aave lending pool, earning interest from borrowers.

stETH (Lido Staked ETH): A liquid staking token that accrues staking rewards via a rising exchange rate against ETH.

Savings tokens are built using specific smart contract patterns that define how yield is accrued and tracked:

• Rebasing (Balance-Update): Token balances in holder wallets increase automatically (e.g., stETH, aTokens).
• Exchange Rate (Share-Based): Underlying value per token increases; holder balance stays constant (e.g., cTokens, sDAI).
• Wrapper (Non-Rebasing): A static-balance wrapper is created around a rebasing token for DeFi compatibility (e.g., wstETH). The choice impacts integration complexity and user experience.

A savings token is a rebasing or vault share token that automatically increases in value relative to its underlying asset. For example, sDAI represents a claim on DAI deposited in MakerDAO's DSR (Dai Savings Rate). The token's exchange rate against the base asset (e.g., 1 sDAI > 1 DAI) increases over time as interest accrues, with the yield distributed via a rising redemption price.

Savings tokens are protocol-specific and have become standard across major lending and yield platforms.

• sDAI (MakerDAO): Earns the Dai Savings Rate from Maker's stability fees.
• cTokens (Compound): Like cDAI, where the exchange rate increases as interest compounds.
• aTokens (Aave): Like aUSDC, which balances automatically in the holder's wallet.
• Gho Token (Aave): A native, yield-bearing stablecoin designed to accrue interest for stakers.

Savings tokens act as money legos, enabling seamless yield integration. They can be used as:

• Collateral in lending protocols (e.g., deposit sDAI to borrow another asset).
• Liquidity in Automated Market Makers (AMMs) and yield-bearing pools.
• The base asset in yield aggregation strategies and structured products. This composability allows developers to build applications where yield is earned passively on idle capital throughout the financial stack.

Savings tokens use two main models for distributing yield:

• Rebasing Tokens (e.g., aTokens, sDAI): The token balance in the holder's wallet increases automatically to reflect accrued interest. This provides a clear, visible yield.
• Non-Rebasing / Vault Share Tokens (e.g., cTokens, yvTokens): The holder's token quantity stays constant, but the exchange rate between the savings token and the underlying asset increases. To realize yield, the holder redeems their tokens for a greater amount of the base asset.

While abstracting yield mechanics, savings tokens inherit and introduce specific risks:

• Smart Contract Risk: Vulnerabilities in the underlying protocol (e.g., Maker, Aave, Compound).
• Integrator Risk: Bugs in protocols that accept the savings token as collateral or liquidity.
• Yield Source Risk: Dependence on the sustainability of the underlying protocol's interest rate model and revenue.
• Liquidity Risk: Potential for low liquidity in secondary markets or redemption pools.

Savings tokens are part of a broader category of yield-bearing assets:

• vs. Liquid Staking Tokens (LSTs like stETH): LSTs represent staked proof-of-stake assets (e.g., ETH) and reward staking yields, while savings tokens typically represent deposited stablecoins or other assets earning lending or protocol fees.
• vs. Yield Vault Tokens (e.g., Yearn's yvUSDC): Yield vault tokens represent a share in an automated strategy that may move funds between protocols. Savings tokens are typically a direct claim on a single protocol's deposit pool.

The protocol or asset that generates the interest for the savings token. This is the foundational mechanism that determines the token's yield.

• Examples: Lending protocols (Aave, Compound), liquid staking (Lido), or treasury management strategies.
• The savings token's value and yield are directly derived from the performance of this source.
• Risk Factor: The security and sustainability of the yield source is the primary risk for the savings token holder.

The two primary mechanisms for distributing yield to token holders.

• Rebasing Tokens: The token balance in your wallet automatically increases over time to reflect accrued interest (e.g., stETH). The token's exchange rate with the underlying asset remains 1:1.
• Reward-Bearing Tokens: The token balance is static, but its exchange rate with the underlying asset appreciates (e.g., cTokens, aTokens, sDAI). You redeem more underlying assets per token over time.
• This is a critical technical distinction for integration and accounting.

A smart contract that automatically allocates user funds to the highest-yielding strategies across DeFi, often minting a receipt token representing a share of the vault.

• Function: Manages capital efficiency and strategy rotation to optimize risk-adjusted returns.
• Examples: Yearn Finance vaults, Idle Finance tranches.
• The vault token (e.g., yvUSDC) is a savings token whose yield is a composite of the aggregated underlying strategies.

Key metrics for evaluating the return on a savings token, differing in how they account for compounding.

• APR (Annual Percentage Rate): The simple interest rate earned over a year, without compounding.
• APY (Annual Percentage Yield): The actual rate of return earned over a year, including the effect of compounding.
• For savings tokens where yield is continuously reinvested (e.g., via rebasing or price appreciation), the APY is the more accurate measure of realized returns.