DeepBook (DEEP) Tokenomics

The DeepBook token ($DEEP) is the native asset of the DeepBook liquidity platform on Sui, a decentralized, permissionless, and on-chain Central Limit Order Book (CLOB). The token is designed to incentivize professional traders and DeFi protocols to provide and utilize wholesale liquidity, positioning DeepBook as key financial infrastructure for the Sui ecosystem.

Issuance Mechanism

The information available does not specify the total supply or the exact issuance mechanism (e.g., inflation rate or minting schedule) for the $DEEP token. However, the token is distributed across four main categories, with a significant portion dedicated to the community.

Allocation Mechanism

The $DEEP token supply is allocated across four primary buckets, with a strong emphasis on community distribution:

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

Usage and Incentive Mechanism

The $DEEP token serves as a utility and incentive mechanism to drive liquidity and trading activity on the DeepBook CLOB.

1. Trading Fees and Discounts (Taker Incentives)

The $DEEP token is used to pay for trading fees on the exchange. Staking $DEEP provides significant benefits to active traders:

• Taker Fees: Fees for taking liquidity start at moderate levels. For wallets that stake a predetermined minimum number of $DEEP tokens in a pool, taker fees are reduced by half once the account hits a minimum trading volume. This can lower fees to as low as 0.25 basis points (bps) on stable pairs and 2.5 bps on volatile pairs.
• Future Fee Payment: Future upgrades are planned to allow users to pay trading fees using the input token, but staking $DEEP will continue to provide fee benefits.

2. Liquidity Provision (Maker Incentives)

Liquidity providers (makers) receive incentives, which are structured to be countercyclical—meaning incentives are largest when total liquidity in a pool is lowest.

• Incentive Calculation: Maker incentives are issued to a given maker based on the aggregate liquidity provided by other makers. This ensures that a maker's decision to provide liquidity does not impair their own incentives.
• Eligibility: Makers are only eligible for these incentives if they have staked the required number of $DEEP tokens in advance with that pool.
• Fee Rebates: Maker incentives are paid out as rebates from the trade fees collected during an epoch. Residual fees not rebated are burned for economic security reasons.

3. Governance

The latest version of the protocol, DeepBook V3, introduces governance functionality.

• Governance Rights: Governance rights increase with the amount of $DEEP staked, but at a sub-linear rate (square root) past a certain threshold. This mechanism is designed to provide greater representation to smaller entities and counterbalance large institutional traders, making it resistant to governance capture.
• Governance Limitations: Pool governance is restricted to adjusting only two fee-related parameters, and these adjustments are subject to limitations to prevent large stakers from exercising monopolistic pricing.

4. Anti-Wash Trading Mechanisms

To protect the protocol against wash trading and inorganic activity, two primary defenses are implemented:

1. Token Burning: Tokens collected in an epoch by a given pool can never be less than the tokens distributed. The residual tokens are burned as a credible commitment to economic security.
2. Incentive Cap: Once a minimal liquidity threshold is reached, the incentives given to a maker for a specific trade will be less than the fees collected on that same trade, disincentivizing wash trading for individual participants.

Locking Mechanism and Unlocking Time

The $DEEP token utilizes a staking mechanism tied to eligibility for incentives and governance rights, which implies a form of locking.

• Staking for Eligibility: Prior to an epoch, wallets choose how many $DEEP tokens to stake with a pool. Staking a predetermined minimum number of $DEEP is required for takers to receive discounted fees and for makers to be eligible for incentive rebates.
• Unlocking/Release: Stakes can be rolled over to the next epoch or released back to the original wallets once the epoch concludes.

Specific details regarding long-term vesting schedules for core contributors, early backers, or the exact duration of the epoch for staking purposes were not available. Furthermore, no specific token unlock data for the DeepBook Protocol was retrieved.