That receipt token you got back

With some yield products, what appears in your account after depositing is not the coin you put in but a differently named token. The first reaction is usually “where did my asset go”. It did not go anywhere — what you hold is a claim on it.

The mechanism is simple enough, but it drags three consequences behind it: how the token grows, why it can trade below the value of what backs it, and the fact that you have two exits rather than one.

What a receipt token is

Take Ethereum staking. The ethereum.org staking pools page states that most transparent pools issue a liquid staking token — an ERC-20 that represents a claim on the staked ETH and the rewards it earns.

“Claim” is the load-bearing word. The token in your wallet is not ETH; it is a receipt saying a share of ETH plus accrued rewards sits underneath. There is a layer between the receipt and the thing. Most of the time that layer is invisible. Occasionally it is not.

The pattern is not unique to staking. Any product that hands you a token representing a share has the same shape; only the underlying and the operator differ.

Two ways it grows: rebasing versus rate-appreciating

Receipt tokens pass yield to you in one of two ways, and mixing them up produces wrong arithmetic:

• Rebasing. The number of tokens you hold increases on its own; each one keeps the same share of the underlying. The count visibly grows — intuitive, but each change is an event you may need to record.
• Rate-appreciating. The count stays fixed and the exchange rate moves: each token redeems for more of the underlying over time. Nothing in the balance changes, and the gain shows up as “one token is now worth more”.

Neither design is better. They feel completely different, though. Rebasing looks like growth; rate-appreciating looks like nothing is happening, which regularly convinces people the product has stopped earning when the gain is simply living in the ratio rather than the count.

Telling them apart is direct: after some time, check two numbers — how many tokens you hold, and how much underlying one token redeems for. Whichever moved tells you the type.

Why the distinction changes your records

If you keep yield records, the two types record differently. Every rebase is a datable event. With a rate-appreciating token, nothing happens to the count until you redeem or sell — the gain materialises in one step at exit.

That changes when you can say what you earned, and what you can produce if records are ever required. How to keep them is covered separately in yield income records; the point here is narrower: identify which type you hold before choosing how to record it.

One more caution: a growing token count is not the same as growing value in your own currency. The underlying still rises and falls — the same distinction as in coin or dollar terms.

Receipt tokens can trade at a discount

This is the layer most often missed. The ethereum.org page states plainly that because these tokens trade freely, their market price may diverge from the value of the ETH backing them, and lists “the secondary-market price of the token may fall below the value of the ETH backing it” as a market and liquidity risk — noting it is more pronounced during periods of market stress.

The reason is structural. A secondary-market price is set by whoever is buying and selling right now, while the underlying claim may only be redeemable through a process that takes time. When many holders want out immediately and the orderly route involves a queue, whoever takes the token off your hands will want a discount for it.

So “this token is liquid” and “this token converts at face value” are two different statements. The first usually holds. The second is not guaranteed — least of all in exactly the conditions where you most want out.

Two exits, priced differently

• Redeem through the protocol or product. Hand the token back and receive the underlying at the current ratio. You get what you are owed, but there may be a wait, and how long depends on the rules and queue at that moment.
• Sell on the secondary market. Immediate proceeds, at whatever the market pays — possibly below the backing value. You are buying immediacy with a discount.

Neither is the good option and neither is the bad one; it is a fast-versus-full trade. What actually hurts is not knowing both exist — people wait when they needed speed, or pay a discount when they were not in a hurry.

Before deciding, put two numbers side by side: what selling gets you now, and roughly how long redeeming takes plus what it returns. Waiting periods and rules are whatever the product or protocol page says at the time; this article gives no durations.

Common questions

My token count never changes. Has it stopped earning?

Not necessarily. If it is a rate-appreciating token, the count is not supposed to change — the gain shows up as each token redeeming for more of the underlying. Check two numbers after a while: how many tokens you hold, and how much underlying one redeems for. Whichever moved identifies the type.

The token trades below the asset backing it. Is that normal?

That divergence is a known property. The ethereum.org staking pools page lists “the secondary-market price may fall below the value of the ETH backing it” as a market and liquidity risk and notes it is more pronounced under market stress. Secondary prices are set by current buyers and sellers while orderly redemption may involve waiting — immediacy is what the discount pays for.

If I need money quickly, redeem or sell?

It depends which you need more. Redeeming returns what you are owed at the current ratio but takes time; selling is immediate at whatever the market pays, possibly at a discount. Put both numbers next to each other before choosing. Waiting rules are whatever the product or protocol page says at the time.