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 tokenomics are designed to incentivize professional traders and DeFi protocols to provide continuous liquidity, positioning DeepBook as key financial infrastructure for the Sui ecosystem.

Issuance and Allocation Mechanism

The DEEP token was launched alongside DeepBook Version 3 on October 14, 2024. The token supply is structured to distribute the majority of tokens to the community and ecosystem participants.

Token Allocation Breakdown

The total DEEP token supply is distributed across three main categories:

This allocation structure ensures that over two-thirds of the total token supply is designated for 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. The token model relies on four core flows, primarily centered around fees and incentives, which operate on an epoch basis.

1. Trading Fees and Discounts (Taker Incentives)

The DEEP token is used to pay for trading fees on the exchange, although future upgrades may allow users to pay fees using the input token. Staking DEEP provides significant benefits to takers (traders who remove liquidity):

• Volume-Based Taker Fees: Fees start at moderate levels but decline to low levels based on a trader’s volume taken in a pool over an epoch.
• Staking Benefits: Users who stake DEEP can enjoy reduced trading fees. For staked takers, fees can be reduced by half, dropping to as low as 0.25 basis points (bps) on stable pairs and 2.5 bps on volatile pairs.

2. Liquidity Provider Incentives (Maker Incentives)

Liquidity providers ("makers") receive incentives designed to be countercyclical—meaning incentives are highest when total liquidity in a pool is lowest—to ensure the protocol remains solvent and to discourage wash trading.

• Eligibility: Makers are only eligible for these incentives if they have staked a required number of DEEP tokens in advance with that pool.
• Mechanism: Incentives issued to a given maker depend on the aggregate liquidity provided by other makers. This ensures that a maker's decision to provide liquidity does not impair their own incentives, only those of other makers.
• Reward Source: Maker incentives are rebates earned based on maker volume generated and are paid out from the trade fees collected during the epoch.

3. Governance

DeepBook Version 3 introduces governance functionality, and the DEEP token is intended to play a role in this process.

• Governance Rights: Governance rights increase with the amount staked, but at a sub-linear rate (square root) past a certain threshold. This mechanism is designed to prevent governance capture by large institutional traders and ensure greater representation for smaller entities.
• Scope of Governance: Pool governance is restricted to adjusting only two fee-related parameters, preventing large stakers from exercising monopolistic pricing power.

4. Fee Burning

To ensure economic security and stability, residual trade fees collected in an epoch that are not rebated back to makers as incentives are burned. This mechanism acts as a credible commitment against wash trading by ensuring that tokens collected by a pool can never be less than the tokens distributed.

Locking Mechanism and Unlocking Time

The core mechanism for accessing incentives and discounts involves staking DEEP tokens with a specific pool prior to an epoch.

• Staking Requirement: Both takers (for fee discounts) and makers (for rebates) must stake a predetermined minimum number of DEEP tokens in a pool to be eligible for incentives.
• Unlocking/Release: Stakes can either be rolled over to the next epoch or released back to the original wallets once the epoch concludes.

While the token allocation includes categories for core contributors and early backers, specific, detailed vesting schedules (locking periods and linear unlocking times) for these allocations were not available.