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# OM-ftOM Exchange Rate

## What is ftOM? 

It's a CW-20 (ERC20 equivalent) value-accruing token wrapper for OM that is staked in validators. Its balance does not change with each harvest operation (an act of harvesting, and autocompounding back into validators), but its value in OM does. Internally, it represents the user's share of the total supply of OM tokens.

At the beginning before any harvest operation (claiming and compounding rewards) has been done, 1 ftOM equals to 1 OM. After accruing rewards based on validator APR, we claim and compound these rewards. The underlying claim to OM tokens increases, but the number of ftOM that a user holds does not increase. (Exchange rate increases such that perhaps 1 ftOM equates to 1.05 OM)

$$
ExchangeRate = \frac{OM\_{\text{stakedInValidator}} + OM\_{\text{validatorRewards}}}{ftOM\_{\text{totalCw20Supply}}}
$$

## These are the benefits:

* Immediate usability in DeFi, as alternative methods tend to be rebasing tokens, and are not readily supported in DeFi.
* Auto-compounds users' rewards such that they achieve APY instead of APR, giving them higher yield, and saving gas for them.
* From the network's point-of-view, all harvested rewards are immediately locked back in validators. Of course there's the option of selling rewards back into OM via liquidity pools.


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