DeepBook (DEEP) Tokenomics

The DeepBook Protocol, built on Sui, introduces the DEEP token as the core economic and governance asset for its decentralized central limit order book (CLOB). Below is a comprehensive breakdown of its token economics, including issuance, allocation, usage, incentives, locking, and unlocking mechanisms.

Issuance Mechanism

• Volume-Based Taker Fees: Fees for taking liquidity in a DeepBook pool start at moderate levels and decrease as a trader’s volume increases within an epoch. This incentivizes active trading by reducing marginal costs for high-volume participants.
• Maker Incentives: Liquidity providers (“makers”) receive incentives that start at higher levels and decrease as total pool liquidity increases. This countercyclical design rewards makers more when liquidity is scarce, supporting protocol solvency and discouraging wash trading.
• Staking Requirement: Only makers who have staked a required number of DEEP tokens in advance are eligible for incentives. The computation of incentives occurs after each epoch.
• Fee Burning: Residual fees not distributed as incentives are burned, inspired by Ethereum’s EIP-1559, to prevent off-chain collusion and reinforce economic security.

Allocation Mechanism

The DEEP token is distributed across four main buckets to align incentives and foster ecosystem growth:

This structure ensures that over two-thirds of the token supply is directed toward the broader community and future growth.

Usage and Incentive Mechanism

• Trading Fees: DEEP is used to pay trading fees on DeepBook. Staking DEEP can halve taker fees (as low as 0.25 bps for stable pairs, 2.5 bps for volatile pairs).
• Staking for Incentives: Both takers and makers can stake DEEP to access reduced fees and earn rebates. Only staked makers are eligible for incentive rebates.
• Governance: Stakers can propose and vote on changes to pool parameters (taker fees, maker fees, minimum staking requirements) for the next epoch. Voting power increases sub-linearly with stake, promoting decentralization and mitigating governance capture.
• Countercyclical Maker Incentives: Incentives are highest when liquidity is lowest, and decrease as more liquidity is provided, ensuring robust liquidity even in less active periods.
• Fee Rebates and Burns: After each epoch, eligible makers receive rebates; any remaining fees are burned to maintain protocol health.

Locking Mechanism

• Epoch-Based Staking: DEEP tokens must be staked for the duration of an epoch to access fee reductions and maker incentives. Stakes can be rolled over to the next epoch or released back to the original wallet.
• Minimum Staking Thresholds: There are minimum staking requirements to participate in governance and to be eligible for trading fee discounts and maker incentives.
• Concave Voting Power: Voting power is linear up to a threshold and then becomes concave, reducing the influence of large stakers and encouraging broader participation.

Unlocking Time

• Epoch Conclusion: Staked DEEP tokens can be unlocked at the end of each epoch. There is no indication of additional time-locked vesting for staked tokens beyond the epoch structure.
• Token Distribution Unlocks: The initial airdrop and allocations to contributors and backers are distributed according to the protocol’s launch and vesting schedules, but the majority of tokens for grants and community programs are released over time to support ongoing ecosystem development.

Summary Table

Additional Notes

• Anti-Wash Trading Measures: Incentive design ensures that rewards for makers are always less than fees collected once a liquidity threshold is reached, and residual fees are burned.
• Governance Safeguards: Only two fee-related parameters can be adjusted per epoch, and voting power is capped to prevent monopolization.
• Open Source and Community Development: DeepBook is open for community proposals via the Sui Improvement Proposals (SIPs) process, though the project team retains final implementation authority.

For further technical details, see the DeepBookV3 documentation and the DeepBook Token Whitepaper.

This comprehensive tokenomics design aims to balance incentives for liquidity providers and traders, ensure protocol solvency, and foster a decentralized, community-driven governance structure.