In the first part of this series I talked about the biggest mistakes projects make in their tokenomics: namely, launching without clear token utility, launching with too low of an initial supply, and over-aggressive emissions (usually via liquidity mining). And I promised to reveal our approach instead.
In this part, I introduce our governance token and tokenomics. I show how we give the token clear utility via Solana’s governance program and our Rising Tide revenue accrual mechanism. I talk about our truly fair sale that gives early adopters and community contributors (that’s you!) a better deal than private investors, and caps the price to prevent buyer’s remorse. And I explain how we use our own product, Socean Streams, to purchase our own liquidity and accrue long-term value to the protocol. Overall, we have designed mechanisms that aim to maximise long-term token holder value.
Socean’s Governance Token
- Total supply: 1 billion (1,000,000,000)
- Initial circulating supply: 16% of total supply sold via fair sale
- Exact token allocation breakdown to be revealed in next post
Unlike other projects, we do not rush to launch a token. We wanted to release a token only when i) we’ve demonstrated that Socean provides true value to the world, ii) we know what Socean stands for, and iii) we’re confident that we’ve gotten tokenomics right. We are finally here. We’ve built a community of dedicated Soceaners. We’ve clarified our mission, vision and values. And we’ve designed tokenomics that prioritise long-term value over short-term euphoria.
Governance token utility
The SOCN token gives you a stake in our future and a seat at the table. Token holders are entitled to a share of the protocol’s profits (via our Rising Tide mechanism — see next section). Token holders will get to propose and vote on decisions like approving grants for new products and features, setting the stake delegation strategy etc.
These are not just empty promises. We were the earliest adopter of Solana’s governance program after Mango DAO, and we’ve already set up the Socean DAO.
As you can see, the core team has already used the Governance Program for multiple proposals and this will be opened up to SOCN holders. We have not settled on the exact mechanism of how governance token holders will vote, given the dangers of proportional coin voting (see this article from Vitalik). We are thus watching and thinking about the latest developments in this space (e.g. Curve) very closely.
Because locked SOCN can’t be used in governance, we have unlocked 2.5% of total supply from the team’s allocation in order to allow the core team to participate in governance. These tokens will be used solely within the governance program and will not be sold for at least one year. We will publish the wallet addresses which hold these tokens to prove that they are used solely for their intended purpose.
Use of funds
The goal of a DAO is to maximise long-term token holder value. The funds raised in our fair sale will thus be used to provide liquidity in scnSOL pools, compensate community contributors, fund new initiatives, and pay out bug bounties. The funds will be stewarded carefully to make sure the protocol can survive and thrive for the long term: this is one of our core values.
Our goal is to maximise long-term token holder value. As we’ve written in our previous post, many protocols design tokenomics with an artificially low supply and aggressive liquidity mining emissions.
As a result, token prices start off very high, and dump quickly after.
Not all capital is equal. There’s good capital that’s interested in long-term appreciation, and there’s mercenary capital that chases yield. We are not interested in mercenary capital.
We’ve therefore decided to go a different way from most other projects in the space, and design tokenomics that:
- reward long-term holders, not short-term ones;
- accrue real, permanent wealth to the protocol;
- stabilise the price of the governance token in the short-term, and grow it in the long-term.
Mechanism 1: Fair sale with a price cap
We are running a truly fair sale with a high float (initial circulating supply) and a price cap.
Why is this sale fair? First and foremost, we don’t artificially restrict the token supply to pump the price. Compared to most other Solana projects, we sell a large percentage of the total supply (16%), so that everyone can buy in at a fair price. Second, we make sure early users and contributors get the same price as our investors. Lastly, we cap the maximum price to prevent runaway valuations and buyer’s remorse.
There are two parts to the fair sale. The first is the pre-sale. 8% of the total supply (80M SOCN) will be reserved for early supporters and community contributors. These users will get a “golden ticket” to purchase allocation at $0.06 — the same price our investors got.
The second is the capped auction. 8% of the total supply will be auctioned off for anybody to purchase, subject to a maximum price of $0.30.
More details about the fair sale will be provided in our next post.
Mechanism 2: Liquidity purchase, not liquidity mining
Liquidity is particularly important to Socean because the value of scnSOL increases with deep liquidity. People (and protocols) may not feel comfortable holding scnSOL unless they can instantly exchange large amounts of scnSOL for SOL.
In a departure from most other protocols, however, Socean will not practice aggressive liquidity mining. While liquidity mining is not entirely bad, and can be a powerful tool to get ahead of the competition, it has many drawbacks; we’ve covered this extensively in our previous post. We find it deeply unfair that builders/holders of the protocol have their wealth strip-mined away by mercenary providers.
Instead, Socean will purchase its own liquidity via Socean Streams. Socean will periodically purchase scnSOL-USDC and scnSOL-SOL LP tokens using SOCN tokens. These SOCN tokens will be sold as streams (bSOCN). These have varying expiry dates(e.g. b30SOCN, b180SOCN, b365SOCN), and entitle the holder to receive SOCN over time. For example, someone who owns 30 b30SOCN will receive 1 SOCN per day for 30 days. For more details, visit our explainer on Socean Streams.
There are many advantages to this approach. First and foremost, it allows the protocol to own its own liquidity, growing protocol wealth rather than giving it away.
Second, unlike liquidity mining, liquidity purchase retains its effectiveness even as TVL grows. With liquidity mining, the same amount of token emissions has to incentivise a larger and larger amount of liquidity, thus becoming less and less effective.
Third, by distributing the tokens over time rather than all at once, we don’t flood the market with tokens, keeping the SOCN supply/inflation rate/price action healthy.
Finally, it attracts long-term holders and repels short-term mercenary capital. For more details, check out this post introducing Socean Streams.
Mechanism 3: Rising Tide
Finally, we’re introducing a new revenue accrual mechanism we call Rising Tide. This allows Socean to convert its future revenues into token price appreciation, growing the SOCN token price in the long term.
The protocol will first set up a private SOCN-USDC liquidity pool. Anyone can use this liquidity pool to trade, but only the Socean protocol can add to or remove liquidity from it. This provides much-needed liquidity for the token.
In the future, the protocol will periodically add its (USDC) revenues into the liquidity pool. This will cause the spot price of SOCN to increase proportionately. SOCN is therefore guaranteed to track future revenues of the Socean protocol, and will therefore continuously appreciate in price — thus, a “rising tide”.
Let’s walk through an example. Suppose the LP starts off with 100 SOCN and 100 USDC. Thus the market price of SOCN is 1 USDC.
The protocol now adds 10 USDC to the pool. Now the pool has 100 SOCN and 110 USDC. The price of SOCN thus becomes $1.10.
In essence, the Socean protocol backs the price of the governance token with its reserves and future revenues. At any moment, it is willing to purchase your governance token at the spot price, and the spot price increases as revenues are added to the pool.
This solution kills two birds with one stone. We provide liquidity for the SOCN governance token, and have an elegant, automatic way to distribute profits to token holders. The combination of guaranteed liquidity and future revenue accrual gives SOCN price stability and long-term price appreciation.
While the Rising Tide mechanism is a good way to give token holders a return on their investment, the protocol should only distribute profits when the protocol matures and revenues can’t be put to better use. Remember, we are maximising long-term token holder value, not trying to take profit immediately.
Our fair sale puts private investors and users on the same footing and prevents runaway valuations.
Our liquidity purchase mechanism grows protocol value and rewards long-term holders by filtering out short-term traders.
Our use of Solana’s governance program and the “Rising Tide” mechanism provides price stability to SOCN and gives the token clear utility.
At Socean, we have thought deeply about how to build a system that better rewards all stakeholders over the long term. We hope you’ll see the benefits of our more thoughtful approach over more short-term-oriented mechanisms, and that other projects will adopt our contributions to propel the space forward.
Stay tuned for the final part in the series, which will give specific details about our token allocation and upcoming fair sale.