> For the complete documentation index, see [llms.txt](https://piggybank.gitbook.io/docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://piggybank.gitbook.io/docs/vault-infrastructure/liquid-tokens.md).

# Liquid Tokens

## Liquid Tokens

Liquid tokens (LST) represent a user's share in the vault. They are fully transferable SPL tokens that can be traded, used in DeFi, or redeemed for underlying assets.

### Token Properties

Each vault's liquid token:

* Uses the same token standard as underlying (Legacy or Token 2022)
* Maintains the same decimal precision
* Has a custom ticker and name
* Follows SPL token conventions

### Exchange Rate

The LST/underlying exchange rate is calculated as:

```
exchange_rate = underlying_represented_by_lst / lst_supply
```

Where:

```
underlying_represented_by_lst = managed + epoch_deposits - epoch_redemptions - prev_epoch_redemptions - pending_redemptions
```

### Minting Process

When users deposit:

1. Calculate current exchange rate
2. Determine LST amount to mint
3. Mint tokens to user's wallet
4. Update vault accounting

The minting formula:

```
minted_lst = floor(deposited_underlying * lst_supply / underlying_represented_by_lst)
```

### Burning Process

When users redeem:

1. Burn LST from user's wallet
2. Calculate underlying amount
3. Create redemption record
4. Queue for processing

The redemption formula:

```
underlying_redeemed = floor(redeemed_lst * underlying_represented_by_lst / lst_supply)
```

### Transfer Capabilities

Liquid tokens can be:

* Transferred between wallets
* Traded on DEXs
* Used as collateral
* Integrated with protocols

For Token 2022 vaults, transfer hooks enable:

* Compliance checks
* Access control
* Custom transfer logic


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