Sui Tokenomics

The term tokenomics is a combination of two words: token and economics. It is generally used to describe the economic principles and behaviors of a blockchain.

Blockchains often have a native token which acts as the currency of the network. Native tokens are used to pay for transactions and resource usage, such as compute and storage.

Native token: SUI

The native token of Sui is SUI. The Sui tokenomics structure is designed to support the long-term financial needs of Web3. The SUI token serves four purposes on the Sui network:

1. Provides the opportunity to stake SUI to participate in the proof-of-stake mechanism.

2. SUI is the asset denomination needed to pay the gas fees required to execute transactions or other operations on the network.

3. SUI acts as a versatile and liquid asset for various applications.

4. SUI tokens play an important role in governance by acting as a right to participate in on-chain voting on issues such as protocol upgrades.

Stakeholders

Stakeholders in a blockchain's tokenomics have a vested interest in the viability of the blockchain economy. The Sui economy has three main groups of stakeholders:

• Users, who submit transactions to the network to create, mutate, and transfer digital assets or interact with smart contracts.

• SUI token holders, who have the option of staking their tokens to validators. SUI owners also hold the rights to participate in Sui governance.

• Validators, who manage transaction processing and execution on the Sui platform.

Delegated proof of stake

Sui uses a delegated proof of stake (DPoS) consensus mechanism where validators lock a certain amount of SUI as collateral for the duration of an epoch. Validators cannot make changes to their stake during an epoch, and any changes are applied when a new epoch begins. They then earn rewards for processing operations, such as validating transactions, and for providing resources.

Users of the network hold their own SUI, which they can delegate to validators of their choice as part of a validator's stake. In so doing, the validators reward users based on the amount of SUI they delegate. Users are free to withdraw their SUI or place stake in a different validator before a new epoch begins.

Token supply

There is a finite supply of SUI. The total supply of SUI tokens on Mainnet is capped at 10,000,000,000 SUI. This is the total number of SUI that can ever be minted, but the total supply is not available for transactions. Supply availability follows the designed unlocking schedules in place to enhance the tokenomics stability of the network and provide a long-term level of security.

Token distribution

At the beginning of each [epoch], three important events happen:

1. SUI holders stake their tokens to validators and a new committee is formed.

• The reference gas prices are set as described in Sui Gas Fees.

• The storage fund size is adjusted using the net inflow of the previous epoch.

Following these actions, the protocol computes the total amount of stake as the sum of staked SUI plus the storage fund.

During each epoch, users submit transactions to the Sui platform and validators process them. For each transaction, users pay the associated computation and storage gas fees. In cases where users delete previous transaction data, users obtain a partial rebate of their storage fees. Validators observe the behavior of other validators and evaluate each other's performance.

At the end of each epoch, the protocol distributes stake rewards to participants. This occurs through two main steps:

1. The total amount of stake rewards is calculated as the sum of computation fees accrued throughout the epoch plus the epoch's stake reward subsidies. The latter component is temporary in that it only exists in the network's first years and disappears in the long run as the amount of SUI in circulation reaches its total supply.

2. The total amount of stake rewards is distributed across various entities. The storage fund is taken into account in the calculation of the epoch total stake, which is not owned by any entities in the way that staked SUI is. Instead, the Sui economic model distributes the stake rewards accruing to the storage fund to validators for compensation of their storage costs.

The distribution mechanisms built into Sui tokenomics encourages a healthy competition for fair prices where validators set low gas fees while operating with viable business models. Refer to the whitepaper for in-depth review of the mathematical proofs that support this structure.

Vesting schedules

A vesting schedule dictates when certain blocks of SUI become accessible to the market. The Sui tokenomics design includes a multi-tiered SUI vesting schedule.

When Sui first launched its Mainnet network (initial SUI mint), there was a one-year cliff period. During this time, all initial investors were blocked from transferring their initial stake of SUI to the marketplace. A common practice for new cryptocurrency, the cliff period protected early network stability against large-scale sell-offs from early investors. The cliff period ended in May 2024.

Airdrops

Often, when a new token launches, its minters set aside a percentage of the sum to distribute to early adopters to drive interest in the associated blockchain project. This process is called an airdrop.

There were no SUI airdrops to support the launch of Sui's Mainnet network. This was a publicly-stated, intentional decision for the following reasons:

1. Airdrops expose a potential for bad actors to take advantage of the excitement around a new launch. By publicly stating there would be no airdrops, Sui attempted to mitigate the risk its users faced.

2. Cryptocurrency is regulated differently across the globe. Airdrops can be viewed as taxable events in some jurisdictions, creating legal or financial complications.

3. Sui is committed to the long-term success of the network and its stakeholders. Airdrops might generate excitement early in a project's lifecycle, but the long-term benefits are minimal.

Storage fund

SUI pays for the gas fees and data storage on the network. A potential problem arises, however, when new validators come on-chain. Even though the validator is new, it still must pay the storage cost for activity that happened before it was part of the network.

Sui addresses this problem with the storage fund, a cache of SUI that never fully depletes. Each on-chain transaction that adds data to the chain includes a fee for storage, which the protocol adds to the storage fund. The storage fund itself has a stake in the network, so it collects rewards based on that stake just like every other on-chain stakeholder. The protocol then regularly distributes those storage fund rewards to Sui validators to pay for storage. In this way, new validators to the network get paid for storing data from past transactions.

Storage fund rewards

Total stake is calculated as the sum of user stake plus the SUI tokens deposited in the storage fund. The storage fund receives a proportional share of the overall stake rewards depending on its size relative to total stake. The largest share of these stake rewards are paid out to current validators to compensate for storage costs. The rewards that remain are reinvested into the fund. When on-chain storage requirements are high, validators receive substantial additional rewards to compensate for their storage costs.

The storage fund includes three key features:

1. Past transactions contribute to the storage fund, which functions as a tool for shifting gas fees across different epochs. This ensures that future validators are compensated for their storage costs by the past users who created those storage requirements in the first place.

2. The storage fund pays out only the returns on its capital and does not distribute its principal. In practice, this means validators borrow the storage fund's SUI as additional stake and keep the majority of stake rewards. Validators do not, however, receive funds directly from the storage fund. This guarantees the fund never loses its capitalization and can survive indefinitely. This feature is further strengthened by the stake rewards reinvested into the fund.

3. The storage fund includes a deletion option. If you delete data, you get a partial refund of the storage fees paid originally.

Deflation

Unlike traditional economics, deflation is a feature of Sui rather than a bug. The total supply of SUI is capped, so increased activity on the network has a deflationary effect as the storage fund grows in relation to the amount of data stored, which effectively takes more SUI out of circulation. The value for SUI increases in relation to the decrease in circulating supply.

Validator rewards

All honest validators on Sui receive their staking rewards with full certainty. The rewards are based only on the amount of stake the validators hold, removing randomness from the equation.

Staking pools

Each Sui validator maintains its own staking pool to track the amount of stake and to compound staking rewards. Validator pools operate together with a time series of exchange rates that are computed at each epoch boundary. These exchange rates determine the amount of SUI tokens that each past SUI staker can withdraw in the future. Importantly, the exchange rates increase as more rewards are deposited into a staking pool. The longer an amount of SUI is deposited in a staking pool, the more rewards it accrues.

When SUI is deposited to the staking pool in epoch E, those SUI are converted into liquidity tokens at the epoch E exchange rate. As the staking pool earns rewards, the exchange rate appreciates. At epoch E', those liquidity tokens are worth more and translate into more SUI.

The only difference between Sui staking pools and typical liquidity pools is that in Sui the liquidity tokens do not exist. Rather, the global exchange rate table is used to track the accounting. Because all SUI tokens in the staking pool are treated the same, all SUI tokens immediately count as stake and thus compound rewards immediately.

The staking pool is implemented in a system-level smart contract (staking_pool.move) and is part of the Sui framework.

Validator pool exchange rate

The exchange rate for each validator pool is calculated at each epoch boundary as follows:

$$Exchange rate at E+1 = (1 + (third-party staker rewards at E / third-party stake at E)) × (exchange rate at E)$$

The distinction between third-party owned versus validator-owned rewards and stake is relevant in that validators earn commission on the staking pool's tokens but third-party stakers do not. This accounting enables Sui to keep track of the rewards accrued by both validators and third-party token holders using a single global exchange rate table.

Validator staking pool requirements

There are minimum staking requirements a validator must satisfy to become active and to stay in the active validator set.

Stake requirements

The Sui network is rolling out SIP-39, which will significantly lower the barrier to entry for validators. Instead of requiring a minimum amount of SUI tokens, validators will need a minimum amount of voting power.

When fully rolled out, SIP-39 will mean the following validator requirements:

• A validator candidate must accrue at least 3 voting power before they can request to join the validator set.
• If an active validator's stake falls below 2 voting power, they have seven epochs of grace period to gain back the stake before being removed from the validator set.
• If an active validator's stake falls below 1 voting power, they are removed from the validator set at the end of the current epoch boundary. Sui uses 24-hour epochs.

For more information on voting power, see Understanding the voting power formula.

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Understanding the voting power formula

SIP-39 uses the following formula to determine if a validator can join the set:

S / (S + T) > V / 10000

• S = The validator candidate's stake amount.

• T = Total amount already staked in the network.

• V = Minimum voting power threshold (3 in the final phase).

• 10000 = Total voting power units in the Sui system.

This formula checks if the validator would have at least V voting power after joining.

1. S / (S + T) calculates what proportion of the total stake the validator would control.

2. When multiplied by 10000, this gives their voting power in Sui's standardized units.

3. The validator can join if this value is greater than or equal to the threshold V.

For example, with a network stake of 7.69B SUI and V=3, a validator with 2.31M SUI would have: 2,310,000 / (2,310,000 + 7,694,950,773) ≈ 0.0003 proportion, converting to voting power: 0.0003 × 10000 ≈ 3 units.

Since 3 ≥ 3, they meet the threshold to join.

As the total network stake changes, the minimum required amount adjusts automatically.

Related links

•

The Sui Smart Contracts Platform: Economics and Incentives

Whitepaper that details Sui tokenomics.

•

Gas Fees

A Sui transaction must pay for both the computational cost of execution and the long-term cost of storing the objects a transaction creates or mutates.