Token Routes
How esETH, STRAT, CDT, and NFT Options flow through the protocol — every route, every user journey.
This page maps every token flow in the protocol. It serves as both a visual reference and an accessible text alternative to the Protocol Overview diagram.
System Overview
The protocol has three fungible tokens (esETH, STRAT, CDT), one non-fungible token (NFT Option), and one vault token (ESPN). Every interaction in the protocol moves one or more of these tokens between users, the treasury, and protocol contracts.
The Five Tokens
esETH
ERC-20 (fungible)
Depositing any supported LST or ETH (1:1 with ETH value)
Redeeming for underlying LSTs
Unified denomination layer for all treasury holdings, pegged 1:1 with ETH
STRAT
ERC-20 (fungible)
Conversion of notes; repayment minting
Burned as collateral for treasury lending
Equity token — leveraged ETH exposure
CDT
ERC-20 (fungible)
Purchasing a convertible note (1 CDT per ~$1 USD notional)
Conversion, redemption, or burned as collateral
Fungible protocol debt — total supply = total debt
NFT Option
ERC-721 (non-fungible)
Purchasing a convertible note (one per note)
Full conversion or post-expiry redemption
Encodes conversion rights (STRAT amount, esETH amount, expiry, timelock)
ESPN
ERC-4626 (vault share)
Depositing USDS into ESPN vault
Redeeming from ESPN vault
Yield-bearing vault token — options premium accrual
User Journeys
1. Mint esETH
Wrap any supported liquid staking token into the protocol's unified denomination.
What moves:
In: LST or ETH from user → esETH contract
Out: esETH minted to user (non-rebasing, predictable balance)
Reverse: Redeem esETH for any supported LST the contract holds.
2. Purchase a Convertible Note (Bond)
The protocol's primary treasury growth mechanism. Notes are USD-denominated — the buyer pays with ETH (priced via an ETH/USD oracle), and the protocol acquires the ETH for the treasury.
What moves:
In: ETH from buyer (priced in USD) → acquired for treasury as esETH, split into encumbered (backs conversion-to-ETH rights) + unencumbered (free capital)
Out: CDT (fungible debt, 1 per ~$1 USD notional) + NFT Option (conversion rights) to buyer
Key detail: The note is a USD-denominated instrument — the CDT amount and conversion entitlements are determined by the USD value of the ETH sent, not the ETH amount itself. The split between encumbered and unencumbered is determined by the ETH conversion entitlement. The encumbered portion is locked until the note holder exercises their ETH conversion right or the note expires.
3. Convert a Note (Before Expiry)
Note holders burn CDT against their NFT to receive either STRAT (equity) or esETH (ETH). Partial exercise is supported.
Path A: Convert to STRAT (Equity Path)
What moves:
Destroyed: CDT burned (reduces total protocol debt)
Created: STRAT minted to holder
Moved: esETH from encumbered → unencumbered holdings (increases available liquidity)
Updated: NFT entitlements decremented pro-rata
Why it matters: STRAT conversion frees esETH for protocol use. More conversions → more esETH available for lending → more interest for stakers. This is the positive flywheel.
Path B: Convert to esETH (ETH Path)
What moves:
Destroyed: CDT burned (reduces total protocol debt)
Moved: esETH from encumbered → unencumbered → to holder
Updated: NFT entitlements decremented pro-rata
Key difference from Path A: The holder receives esETH directly. The treasury loses esETH but also sheds the corresponding debt.
4. Redeem a Note (After Expiry)
After the ~4.2-year expiry, conversion closes and redemption opens. The holder redeems remaining CDT for its USD notional value, paid in esETH.
What moves:
Destroyed: All remaining CDT burned + NFT burned
Out: esETH equivalent to USD notional value (at current ETH/USD price) transferred to holder
If underwater: Holder receives pro-rata share of total treasury instead of full face value. All CDT holders treated equally — no seniority.
Single-shot: Unlike conversion, redemption settles the entire remaining position at once.
5. Stake STRAT (Earn Yield)
Stake STRAT to earn esETH rewards from treasury lending interest.
What moves:
In: STRAT deposited to StakedStrat contract
Receipt: sSTRAT-v2 (non-transferable, tracks your share)
Rewards: esETH streamed linearly over 7-day periods from lending interest
Out (unstake): STRAT returned + pending rewards claimed. No lock period.
Anti-frontrunning: The 7-day linear streaming prevents deposit-collect-leave attacks. New rewards blend with undistributed balance — earlier stakers always retain their accrued yield.
6. Borrow from Treasury
STRAT holders borrow esETH using STRAT + CDT as collateral. Fixed rate, fixed term, no liquidation during the loan.
What moves:
Destroyed: Borrower's STRAT and CDT are burned (not escrowed)
Moved: Pro-rata esETH backing from unencumbered holdings → TreasuryLend contract
Out: Loan amount (esETH) to borrower. Remainder held as interest + delinquent fee reserve.
On Repayment (Before Expiry)
Repaid: Principal + accrued interest in esETH
Created: STRAT and CDT minted back to borrower
Interest: Flows to StakedStrat (streamed to stakers)
Invariant: ethPerStrat unchanged — borrowing/repaying is neutral to other holders
On Default (After Expiry)
Forfeited: Borrower's STRAT and CDT are gone permanently
Distributed: Full-term interest to stakers, delinquent fee boosts ethPerStrat for all remaining holders
Net effect: ethPerStrat increases — defaults compensate remaining holders
7. ESPN Deposit (Volatility Yield)
Deposit USDS into the ESPN vault to earn yield from ETH options without directional exposure.
What moves:
In: USDS from depositor → ESPN vault
Out: ESPN shares (ERC-4626) to depositor
Internal: Vault converts USDS → ETH → bonds with protocol → receives convertible note → sells covered calls on Derive → premiums flow back to vault
Yield: Assets per share increases as premiums accumulate. No action required.
Redeem: ESPN → USDS (instant if liquid, or via redemption queue)
Complete Token Lifecycle
This table traces each token from creation to destruction:
esETH
LST/ETH deposited into esETH contract
Treasury holdings, user wallets, StakedStrat rewards, loan proceeds
Redeemed for underlying LSTs
STRAT
Note conversion (CDT→STRAT) or loan repayment minting
User wallets, StakedStrat contract, secondary markets
Burned as lending collateral or forfeited on default
CDT
Bonding (1 CDT per ~$1 notional)
User wallets, lending collateral, secondary markets
Burned on conversion, redemption, or lending collateral
NFT Option
Bonding (one per note, encoding conversion rights)
User wallets, secondary markets
Burned on full conversion or post-expiry redemption
ESPN
USDS deposited to ESPN vault
User wallets, LP positions, staking
Burned on vault redemption
Treasury Flow Summary
All esETH in the protocol sits in one of two pools:
Encumbered = locked to back ETH conversion rights. Can only leave when a note holder converts to esETH or when the protocol owner releases encumbrance after expiry.
Unencumbered = the protocol's working capital. Funds lending, pays redemptions, distributes rewards. This pool grows when STRAT conversions free encumbered esETH, when bonds bring in new capital beyond conversion backing, and when delinquent fees are forfeited.
The health of the protocol can be measured by watching the ratio of unencumbered holdings to outstanding obligations — a growing unencumbered pool means more capital available for lending revenue and staker rewards.
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