Tokenomics Research | September 2021
Today, we discuss the tokenomics of the major decentralized exchange (DEX) tokens: SUSHI (SushiSwap’s token), UNI (Uniswap’s token), BNT (Bancor’s Token), 1INCH (1Inch’s token), CAKE (PancakeSwap’s token) and CRV (Curve DAO’s token). We define a DEX as a peer-to-peer marketplace, where crypto traders can transact directly amongst themselves without being officiated by an intermediary.
SushiSwap is a decentralized exchange (or DEX, for short), and the first product by Sushi. SushiSwap is also non-custodial, which means that—unlike centralized exchanges—SushiSwap does not need to possess your tokens in order for you to be able to trade them. Instead, SushiSwap allows users to trade trustlessly, peer-to-peer, with liquidity that is supplied by other users. This means that new projects can easily connect to their desired markets as long as some entity is willing to provide the liquidity.
To be a liquidity provider, holders of any token need to supply equal parts liquidity for that token (sometimes called the quote token), and a second token (usually ETH, or a stable coin). In return, these holders receive SushiSwap liquidity provider (SLP) tokens that represent their share of the pooled liquidity for that token pair. The existence of this pooled liquidity gives other traders access to the underlying tokens in exchange for a small fee, which is distributed proportionately to all of the liquidity providers.
In this sense, SushiSwap is also an “automated market maker” (or AMM, for short). While a user’s underlying tokens remain in the pool, fluctuations in the price of the two underlying tokens automatically recalibrate the quantity of those tokens to conform to the equation x*y=k, where x and y are the quantities of the two paired tokens, and k is constant. This means that even though you supply equal parts of two tokens to the pool, the quantities you receive when you reclaim your liquidity will change relative to the difference in the change in price of the two tokens when you remove the liquidity. If the price of x token goes up, and y token goes down, you will have less of x and more of y, and vice versa. If the price of both tokens goes up, or the price of both goes down, you will nonetheless have relative quantities of each token proportionately to the difference in the change of the price of x and y.
There are three core tokens associated with Sushiswap: SUSHI, xSUSHI, and SUSHIPOWAH
SUSHI can be utilized in such a way to give access to other tokens, such as xSUSHI and SUSHIPOWAH, which have distinct benefits.
xSUSHI: xSUSHI is a token, similar to our SLP tokens, that you receive in exchange for staking SUSHI tokens in the SushiBar.
While holding the token, it will appreciate in value, as fees from our exchange platform are “served to the SushiBar.” The xSUSHI token is always worth more than a regular SUSHI token, because xSUSHI accrues value from platform fees. When users make trades on the SushiSwap exchange a 0.3% fee is charged. 0.05% of this fee is added to the SushiBar pool in the form of LP tokens. When the rewards contract is called (minimum once per day) all the LP tokens are sold for Sushi (on SushiSwap Exchange). The newly purchased Sushi is then divided up proportionally between all of the xSUSHI holders in the pool, meaning their xSUSHI is now worth more SUSHI. Because of the way the rewards are generated, the price of xSUSHI will increase with the value of SUSHI, and the value of one xSUSHI will always be greater than the value of one SUSHI. Fees generated into the SushiBar are vested for a period of time
SUSHIPOWAH: SUSHIPOWAH is the governance token for the SUSHISWAP governance process, which is currently run via Snapshot.
Each SUSHI in the SUSHI-ETH pool is worth 2 SUSHIPOWAH
Each SUSHI held via xSUSHI tokens equal 1 SUSHIPOWAH
For a vote to pass and become binding, it must gain a quorum of at least 5 million SUSHIPOWAH.
SUSHI is an ERC-20 token for the SushiSwap Dex. There is a 250 million SUSHI hard cap, with an expected date of reaching the hard cap in November 2023. Currently, less than 20 SUSHI tokens are minted per block.
Below you can find the projected emissions curve:
Uniswap is the leading DEX across crypto. The DEX is based upon AMM technology, meaning anyone can easily participate in market making on the exchange.
UNI is the official token of Uniswap.
The main utility of UNI is governance.
Initial governance parameters are as follows:
- 1% of UNI total supply (delegated) to submit a governance proposal
- 4% of UNI supply required to vote ‘yes’ to reach quorum
- 7 day voting period
- 2 day time lock delay on execution
UNI holders have ownership over
- Uniswap governance
- UNI community treasury
- The protocol fee switch
- Uniswap.eth ENS name
- Uniswap Default List
- SOCKS liquidity token
1 billion UNI have been minted at genesis and will become accessible over the course of 4 years. The initial four-year allocation is as follows:
- 60.00% to Uniswap community members 600,000,000 UNI
- 21.266% to team members and future employees with 4-year vesting 212,660,000 UNI
- 18.044% to investors with 4-year vesting 180,440,000 UNI
- 0.69% to advisors with 4-year vesting 6,900,000 UNI
A perpetual inflation rate of 2% per year will start after 4 years, ensuring continued participation and contribution to Uniswap at the expense of passive UNI holders.
15% of UNI (150,000,000 UNI) could be claimed by historical liquidity providers, users, and SOCKS redeemers/holders based on a snapshot ending September 1, 2020, at 12:00 am UTC.
4.91664% pro-rata to all 49,192 historical LPs (49,166,400 UNI)
~49 million UNI could be claimed by historical liquidity providers. The formula accounts for LP liquidity on a per-second basis since the deployment of Uniswap v1, ensuring that rewards are weighted towards LPs that provided liquidity when total liquidity was low.
10.06136% were split evenly across all 251,534 historical user addresses (100,613,600 UNI)
400 UNI were claimable by each address that has ever called the Uniswap v1 or v2 contracts. This includes ~12,000 addresses that only ever submitted failed transactions.
0.022% to 220 SOCKS holders/redeemers
1000 UNI were claimable by each address that has either redeemed SOCKS tokens for physical socks or owned at least one SOCKS token at the snapshot date.
Users hold and/or stake FTT for the benefits highlighted above.
The governance treasury retained 43% [430,000,000 UNI] of UNI supply to distribute on an ongoing basis through contributor grants, community initiatives, liquidity mining, and other programs.
UNI will vest to the governance treasury on a continuous basis according to the following schedule. Governance will have access to vested UNI starting October 18 2020 12:00am UTC.
Year Community Treasury Distribution %
Year 1 172,000,000 UNI 40%
Year 2 129,000,000 UNI 30%
Year 3 86,000,000 UNI 20%
Year 4 43,000,000 UNI 10%
Team, investor, and advisor UNI allocations will have tokens locked up on an identical schedule.
Bancor is a DEX that enables users to exchange tokens directly and instantly, without the need to sign up or register at all. It was also the first to introduce automated money makers (AMMs) into the DeFi ecosystem. AMMs are a mechanism used by DEXs to pool liquidity from users and price assets in the pool using algorithms – offering 100% uptime, low fees, and deep liquidity.
BNT is the Bancor Network Token, the official token of Bancor.
BNT acts as an intermediary (reserve) token for all of the smart tokens created on the Bancor network. It connects liquidity pools in the Bancor network with other blockchains, in addition to providing staking functionality and acting as Bancor’s governance token.
Holding BNT comes with a few key benefits:
- Impermanent Loss Protection: BNT is an elastic supply token, whereby it is continuously co-invested and burned by the protocol. This means that the protocol is able to support single-sided contributions, whilst circumventing impermanent loss for liquidity providers (LPs)
- Network Effects: Staking BNT on Bancor increases the demand for BNT, in turn driving it’s value. Whilst the same could be said of ETH, as demand for ETH is used across many networks the effect will not be as great
- Staking Rewards: If users stake their BNT in Bancor pools, they will receive freshly minted BNT as a staking reward. This incentivises users to become liquidity providers as it increases the profitability of staking in Bancors pools
- Governance: BNT holders can vote on governance proposals for Bancor – democratically shaping the DEX that they went to use
- Cross-Chain Conversions: Using the BNT token enables Bancor to process trades more efficiently across blockchains. This works by minting and burning BNT across chains to process cross-chain trades
Holders / stakers of BNT can participate in governance, earn interest, and benefit from impermanent loss protection.
Bancor opted for a 50/20/20/10 split of token allocation – 50% to contributors in the fundraiser, 20% to partnerships, 20% towards the long-term operating budget, and 10% to founders, the team, advisors, and early contributors.
In April 2021 the Bancor Vortex Burner was deployed to the Ethereum mainnet, which collects 5% of swap fee revenue and uses it to buy and burn vBNT. This makes BNT deflationary, lowering the risk for users looking to take leverage on staked BNT. In the future the fee taken for burning may be amended to 15% of swap fee revenue.
PancakeSwap has the most users out of any decentralised platform ever, with 2.8 million users in the past 30 days and more than $9.6 billion in total value locked. The exchange utilises an AMM model to buy and sell orders directly with other participants in a liquidity pool for any token on Binance Smart Chain.
CAKE is a BEP20 token and it is the official token of PancakeSwap.
CAKE has the following use cases:
- It acts as the governance token for PancakeSwap – once again allowing users to vote on proposed changes to the platform
- Holders can earn trading fees (in the form of CAKE) by providing liquidity in pools (staking) using CAKE (incentivising liquidity provision on PancakeSwap)
- CAKE can also be staked in special staking pools to earn other types of tokens
- PancakeSwap hosts lotteries for CAKE holders four times a day, with price per ticket currently at 5 USD in CAKE
The benefits of the CAKE token go hand-in-hand with their use cases, providing users with the following:
- Enables community driven governance and allows users to have a say in the development of the platform
- Provides an opportunity for users to earn CAKE and other tokens through providing liquidity to the platform
- Allows users to get involved with PancakeSwap’s lottery feature
Users are able to stake CAKE, use it to enter lotteries, and participate in governance.
The initial distribution of CAKE saw 75% of tokens go to farmers, and 25% to SYRUP token holders. CAKE is inflationary and there is no hard cap, with PancakeSwap’s liquidity mining program having an emission rate of 40 CAKE per block. Of this 40 CAKE, 25 is burnt, with an effective emission of 15 per block (equating to 386,000 CAKE per day). In reality, the figure for effective emission is slightly below as 45,000 CAKE per day is diverted from the amount allocated to the lottery and burnt. Furthermore, on top of the above, CAKE is minted at a rate of 9.09% to the Dev address – meaning that for every 100 CAKE harvested, there is an additional 9.9 CAKE minted.
Other deflationary mechanics exist to keep the inflation from getting out of hand. These are as follows:
- 0.05% of every trade on PancakeSwap V2 is burnt
- 100% of CAKE sent to the Dev address is burnt
- 100% of CAKE raised in IFOs is burnt
- 100% of CAKE spent on Profile Creation and NFT minting is burnt
- 100% of CAKE bid during Farm Auctions is burnt
- 20% of CAKE spent on lottery tickets is burnt
- 45,000 CAKE per day is burnt (formally assigned to the lottery)
- 3% of all prediction markets round is used to buy CAKE for burning
- 2% of every yield harvest in the Auto CAKE Pool is burnt
1inch is a decentralised exchange aggregator that operates by scanning DEXs to find the best cryptocurrency prices for their traders.
The aptly named 1INCH token acts as a utility and governance token for the platform.
1INCH has the following use case:
- As a utility token 1INCH is used as a connector in the 1inch Liquidity Protocol
- 1INCH acts as the governance token for 1inch
- The token can be staked in 1inch
1INCH benefits include:
- It is multi-chain, with the token available on both Ethereum and Binance Smart Chain (BSC). It is worth noting that the BSC integration was implemented using a bridge and there was no additional token issuance
- Due to its multi-chain nature, the 1INCH token acts as a connector, ensuring high-efficiency routing in the 1inch protocol
- Enables community driven governance and allows users to have a say in the development of the platform
- Users staking 1INCH receive governance rewards in addition to the ability to participate in governance
Users holding / staking 1INCH can redeem the above benefits.
On 1INCH’s release date only 6% of the total supply was unlocked, with the remainder to be unlocked according to the below schedule over a four-year period (ending December 30, 2024).
Curve is a leading AMM DEX that enables efficient transactions of tokens that are similar in nature, such as stablecoins.
CRV is the governance token for Curve, but also has value accrual components.
Instead of purely governance being determined by the amount of CRV tokens voting for a proposal, CRV tokens can actually be locked in a voting escrow for a max of 4 years. Tokens that are being locked in the escrow have more voting power than non-locked tokens.
Token ERC20CRV is an ERC20 token which allows a piecewise linear inflation schedule. The inflation is dropping by 2 1/4 every year. Only Minter contract 2 can directly mint ERC20CRV, but only within the limits defined by inflation.
Each time the inflation changes, a new mining epoch starts.
Initial supply of CRV is 1.273 billion tokens, which is 42% of the eventual supply of ≈ 3.03 billion tokens. All of those initial tokens tokens are gradually vested (with every block). The initial inflation rate which supports the above inflation schedule is r = 22.0% (279.6 millions per year).
All of the inflation is distributed to users of Curve, according to measurements taken by gauges. During the first year, the approximate inflow into circulating supply is 2 millions CRV per day, starting from 0.
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