Sanctum tokenomics proposal

Let’s talk token!

As promised, here are my thoughts on tokenomics: excited to work with the community to build good tokenomics together.

Why have a token?

(for initial thoughts see Why a token? Why now? at the jupresear.ch forums)

Let’s start from first principles. Why launch a token?

  1. Decentralise the protocol
  2. Supercharge the transition to the liquid staking future

Decentralise the protocol. We are building critical infrastructure on Solana that will underwrite hundreds of billions of dollars in value. This is far too important to leave in the sole control of the team.

Supercharge the transition to the liquid staking future. Token gives Web3 protocols superpowers that Web2 companies don’t have. We should use this power to its fullest.

We should use the token to bring world-class talent in to build Sanctum together. Jupiter is using $JUP aggressively to grab top talent in this space. We need to do the same.

We should also use the token to bootstrap network effects. The traditional way for Web2 networks to grow is to take a lot of venture capital and run at a loss to capture market share until network effects kick in and the unit economics turn positive. A token lets us do the same thing but accrue value to early users instead. Sanctum is a marketplace with strong network effects: we become exponentially more useful as the number of validators and protocols setting up LSTs explodes, and as the TVL of Infinity grows. It’s good to reward early users, and also unlike investors who in most cases have to take money out of the system, wealth that accrues to protocol users tends to stay in the system.

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How should the token be used?

(for initial thoughts see What will the token do? How will governance work?)

Everything we design should aim to hit one or both of the two “North Stars”.

I think that there is too often a rush to design clever “token sinks”. At the end of the day, the best reason for users to hold token is that the protocol is

  • worth a damn,
  • growing rapidly,
  • changing the world.

Everything else is secondary. You can have all kinds of “utility” like gauges, bribing, clever ve-locking mechanisms and so on, but none of this will fix a stagnating protocol. With that in mind, I’m really interested in discussing how tokens can be used as a valuable strategic resource to grow Sanctum. How should we best use token to acquire world-class talent? Which key partnerships should we secure? How can we bring in 100x the users into the Solana economy? and so on.

People hold token because they want to be part of a good and growing project that’s changing the world, and price is a good distillation of how much a project is doing that. But looking at price alone is missing a key dimension of why people buy and hold tokens. Tokens are symbols (see Symbols and Gods, $ocial): people hold it to feel good vibes, to belong to something greater than themselves.

Sanctum tokenholders should accelerate the infinite-LST future. I want tokenholders to vote on future LSTs to launch on Sanctum, similar to how JUP DAO votes on new projects to launch on LFG. We have a ton of inbound interest for new LSTs and eventually we want all of these LSTs to launch permissionlessly. However, we cannot spotlight/support all of them. Which ones to spotlight? This is an easy usecase for token governance.

We should explore nonfinancial rewards for tokenholders. People care about price, but also status, belonging, mission. I think this is very underexplored. We should recognise and publicise key token holders. How would this look like? special Discord roles, early access to new features (e.g. Sanctum Mobile), being able to talk in weekly community calls? Can we use Wonderland in this? I would love suggestions on this.

The token should eventually also control key parameters like fee switch, which LSTs to whitelist in INF, etc.

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How should the token be distributed?

First and foremost: we want to give the token to the right people; not those with a short-term outlook constantly whining about price, but to the true believers who help us accelerate Sanctum and Solana. How can we best do that? Remember, we want to reward wealth and earnestness:

Tokenomics reflect the ethos of a project, and our key ethos is as simple as it gets - For a project like Jupiter, there needs to be an equal weight between a focused entity able to constantly recruit world-class talent, build product, and execute strategy, and a wider community able to fact-check, counterweight, and help to course-correct.
- meow, on Twitter

This is well-put. The community must give the team a mandate to execute the Grand Vision with world-class velocity and ambition, but at the same time must make sure to keep the team accountable. IMO, nailing how the token can be best put to use is far more productive than obsessing over a few percentage points in the tokenomics allocation.

Controlled by community (40%)

40% of the total supply will be community-governed. Some part of this will be used in an initial airdrop. I would like the remainder to be broken up over at least 4 rounds of airdrops, although of course the community decides what to do with this at the end of the day.

Controlled by team (47%)

  • 25% of the supply has been allocated to founders and core contributors, who have been building Sanctum for more than three years.
  • ~16% is the Strategic Reserve, used to grow the Sanctum ecosystem. It is earmarked for future acquihires, strategic investors, LST partners, grant recipients, loans to market makers and CEXes, etc.
  • ~5% will be used to seed liquidity in the LFG launch pool.
  • 1% will be given to Jupiter LFG.

Allocated to investors (13%)

At present, 13% of the supply has been allocated to investors. We sold some tokens at 50M and some at 60M, most of them back in 2021. I won’t reveal the exact cap table, but the list of our investors is public information and available on our Twitter.

We have worked on Sanctum for three years, including throughout the bear market. We take an appropriately long-term perspective. All team and investor tokens unlock over 3 years with a 1-year cliff. That means that 33% of the tokens will unlock 1 year after TGE, while the other 66% will vest linearly over 24 months after the cliff. All team and investor tokens will be fully vested 36 months after TGE.

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Closing remarks

The token is meant to decentralise the protocol and accelerate the transition to the liquid staking future – align incentives, bring in world-class talent, bootstrap network effects, secure key partnerships.

Key questions I’m most interested in exploring:

  • How can we identify the best people who are long-term aligned with Sanctum and distribute token to them?
  • How can we make people feel a sense of belonging and purpose when they hold the token?
  • How can we allow people to meaningfully contribute to Sanctum via the token?
  • How can we take governance and token utility to the next level? Jupiter is doing a great job already, how can we learn from and surpass them?
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Great post.
I think a token is a great tool in building a decentralized ecosystem.
You stated that you sold tokens to investors at 50M and 60M valuation, but didn’t give any information on the token itself or the supply. Is this a deliberate omission?

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What a great thread!

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regarding airdrop: reward loyalty and active users not just pure capital

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Great post FP, just a couple of questions:

  1. Could you elaborate on how Sanctum plans to allocate tokens within the strategic reserve, particularly regarding contingencies like market-wide depegs or security incidents? How do you envision using the reserve to stabilize the platform during such events?
  2. What mechanisms are being considered for risk management within Sanctum’s ecosystem? Is there a plan to establish a risk committee, and if so, how will members be chosen and compensated? Incentive alignment for DAO committee members?
  3. From a legal jurisdictional standpoint - how is the entity being established to minimize compliance risks for the token holders and the entity itself?
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Thank you for the thread and for asking the community what they think you should do!

Concerning the the sense of belonging:

I believe airdropping NFTs to holder could be a way of building and rewarding the community. Aurory used to airdrop some NFTs if you held one NFT in your wallet.

With sanctum, this could start with solely rewarding holders with a generic NFT. But down the road I think you could also play with physical merch, invites for conferences where sanctum is attending… possibilities are endless

You could also partner with Aurory or a solana NFT game to have an in-game playable character → only token holders would get to play this character?

($mew and aurory airdropped an NFT if you were holding some $mew I believe)

The longer you hold the token the more NFTs you would collect?

Why not also burn an NFT and get raffled for some rewards? Could be anything.

This is just food for thoughts but this could be interesting and quite easy to set up imo!

Cheers

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Thanks for the thread and sharing your thoughts. Enjoyed your previous takes on twitter about it as well.

I want to share my thoughts on token distribution, because that is one of the hardest things to achieve imo. Giving tokens to the “right people” sounds good in theory but is even tougher in practice.
We saw a lot of projects struggle here.

I agree that we should filter out “low quality” users who split up small amounts of money across tens or even hundreds of wallets, as well as those who provide liquidity at the last minute. We’ve seen some ways to deal with the first issue, like setting minimum thresholds, but we haven’t done much about the second.
Maybe a minimum staking duration could be beneficial to avoid gaming in that direction? Main challenge here would be to find a fair treshold cause you likely also want reward newcomers to some extent. Could be worth looking into though.
Multipliers could also decrease the edge of big players depositing shortly before the snapshot (and I kinda see the sanctum quests/rewards your way of achieving this).

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Brilliant thread. Just glad to see that founders follow thru with promises to check with community around key issues that can build or break community like tokenomics & more. Fully align with the key points you outlined about who to give tokens to as it’s not good for the project or holders when those who aren’t keen with the project receive these tokens & just dump it and leave. Think putting in place small but important strategies like those engaging in such debates after setting up sanctum accounts, those who voted, engaged in social platforms etc basic stuffs like that if can be captured and rewarded can sort of make a difference. Understand that comes with it challenges as I am not a tech expert but in all it’s better than just randomly airdropping to anyone. Also making sure that these tokens aren’t just all airdropped at once as you suggested. Think Sanctum is a solid project and will go places! Good luck to the team & community & hope we all stick together.

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I LIKE THE IDEA OF BUILDING TOGETHER, ignoring differences but also strengths

Thank you for your article. I think it would be interesting to continue with gamification involving quests and other adventures for the user. Forming associations with other projects could be interesting and create a desire to continue the adventure. The visual aspect is part of the puzzle. The story you tell is beautiful, and you should continue in this direction. Well done

Thanks all for the responses!

The token supply is an arbitrary number, it could be 100M, 1B, 10B – the percentage is what counts.

I am deliberately taking an expansive view on what the strategic reserve will be used for. The general principle is to use the reserve to grow Sanctum strategically, and risk management may be part of that.

I don’t believe that the Sanctum Reserve will be that useful for depeg events; depeg events are usually tied to the price of SOL, and there’s little we can do to backstop that with the Sanctum native token. What other kind of risks are you talking about?

re: the legal, we follow best practice, making sure to separate on- and off-shore entities, not falling afoul of securities laws, etc.

re: initial token distribution: I’ll share more about this in the future, but I can’t talk too much about this now, because of Goodhart’s Law. Of course everyone is encouraged to talk about whatever they want!

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Here is an excellent community contribution on how the 40% community distribution should be put to work:

https://twitter.com/JamesleyHanley/status/1789567082906124362

I particularly like this tweet in the thread:

https://twitter.com/JamesleyHanley/status/1789567113994408351

The Sanctum token should be both a voting token and a representation of one’s commitment and contributions to Sanctum.

Sanctum token holders should feel part of both a Community and part of an Earnest sub-culture on Solana.

They should be motivated to actively engage in voting and the community and feel they can influence its direction.

They should feel they’re growing the pie (GTP) for themselves and others.

They should feel that, by being involved in Sanctum, they’re moving up and to the right (blue line).

This will, in turn, attract more Earnest, positive-sum Community members to Sanctum, enabling the flywheel (see 4/):

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Thank you for allowing the community to add comments regarding tokenomics and seeking suggestions on how to move the community forward for the greater good.

TOKENOMICS/AIRDROPS:
Regarding tokenomics, the current gamified experience model is a good starting point but the project would miss a big opportunity for goodwill; free marketing; and onboarding of future stakers if they did not satisfy the general public and most reward short-term whales as Kamino unfortunately did. Satisfying and rewarding the big stakers is critical but only the active ones. Big holders can easily leave at the next TGE opportunity, in essence farming Sanctum for a short period for TGE with a large amount of $INF/$SOL instead of a small amount. The best projects like JupAgg provided an idea airdrop by doing few things:

  1. Provide a minimum drop for all members as a welcoming gift as goodwill and good marketing.
  2. Provide secondary season airdrops with follow-up season 2 and 3 for all those that re-stake the initial airdrop for the next year or two.

By doing this, the project rewards and markets to all current and future potential stakers and leaves everyone somewhat happy about the TGE experience. Then by double rewards in follow-up seasons, we get to see and honestly reward those who are truly loyal and long term stakers to the project/community.

Lastly, many are concerned about farming to sell token. One fun twist Sanctum could implement is to provide a claim of 50% at the TGE date and then increasing claim supply after a grace period, say 1-2 weeks. IOW, the earlier they claim, the less they collect and the uncollected remains get burned.

Growth of LSTs:
As for the growth of Sanctum and LSTs, this will be the key determining factor on whether Sanctum expands into an integral contributor to crypto ecosystems or stagnates and is just a farming project by holders.

I don’t believe following JupAgg is the right path. LSTs enhance liquidity staking and more projects that can add an LST would be beneficial for the future of PoS decentralization and for Sanctum.

What can we do? I suggest, every 2-3 months, highlight 3 teams and have the community vote on which team Sanctum should reward and allocate some LST/INF toward their staking and to provide extra reward to those stakers of that project during this period. This accomplishes two things: First they give spotlight/marketing to 3 teams and what they are doing and why Sanctum and SOL community should provide more support for their project. Secondly, provide the financial support by staking SOL/INF to give a boost to stakers/holders of that project. This could have teams trying to innovate and improve LSTs and their north star by thinking bigger than just staking rewards.

Potential Pivot/Addition:
One critical difference from Sanctum to JupAgg/other projects is that LSTs are in essence all similar smart contracts, no matter who the team is, with differences only based on smart contract details like reward, APR and fee. On this component, Sanctum could pivot AND allow new projects to launch their LST first, then for those interested, help with a follow-up governance token TGE help through Sanctum. This would be a difference maker and one that can help fast-track LST and TGE through the Sanctum project.

Parting Words:
To grow and expand successfully as an integral member of the Crypto ecosystem, Sanctum must attract and keep meaningful members actively contributing to the future of the project. To reward these participants, lots can be done with extra airdrops, future NFTs or discord titles for participants and impactful members. The key will be to identify and have all members, even those with a small amount of $INF staked, to actively participate; build a community; and share ideas to help Sanctum grow and expand.

Thank you,

NYSoul

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I agree on this. Great thread and great read. Growing the pie has always been the way.

I do think though that the “perfect airdrop” doesn’t exist. Somebody will always feel left out. Therefore, what I would like to see the most is: clear communication and transparency. This discussion alone gives me confidence that you guys are aware of this and work towards it.

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I support this particular idea. Like how Drift approached the matter and how in their case a part of every allocation is to be vested. Not 9 months though, since in a span of a year there should be “at least 4 more rounds of airdrop”.
Eliminates constant talks about “whales dumping straight away on plebs”, implicates a “better” post TGE experience, in a way forces big players to pay attention to the project for a fairly long duration of time and with new use-cases emerging throughout this period might be key to retaining these instrumental holders.

Don’t think “a minimum drop” for all members is a good way to go about things - you can easily set up thousands of wallets and throw in 0.1 LST on each of them. It’s all good when FDV goes bonkers since everyone is happy (like with Jupiter), but it still rewards “mercenaries” way too much.

Support staking part playing role in future rounds of token distribution.

Attracting protocols that have plans to TGE is an interesting path (similar to ISPO models on Cardano). I still think that not many protocols will agree to do a TGE this way unless they have no actual product to interact with, so there needs to be a balance between holding their LST and holders using the protocol (using the LST for additional point multiplier inside said protocol if possible).

Regarding spotlight on certain LSTs - I think it’s a good suggestion and it’s crucial to remind people about their perks and special features, but since the plan is to onboard dozens of new various LSTs financial support part gets harder. There might be a way of attracting people through token distribution - reserve allocations for different LSTs supported by Sanctum for different rounds of distribution (similar to wonderland, but without an interactive part I guess). This way people will get to know these LSTs; also smaller ones will still get traction (if allocations to each participating LST is fixed to an extent) → after initial influx of new buyers smaller ones will become more fruitful in terms of tokens allocated to them, naturally pushing people to hold these.

Liked the post, well put together. Definitely some food for thoughts.

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Since wonderland is community rewards focused I believe their should be different parts to each drop. The community aspects, the loyalty aspect, and the value aspect.
If we were to show 3 allocations to my previous statement it would show what’s important to us as well help set the standard on leading Solana projects present and future. We are a community driven blockchain, we value loyalty, and we value each individuals money, time, and trust
Set us up properly to prove we are here and we aren’t going anywhere.

That way you divide it into th 3 core values and you can lay out what each part will reward and so everyone can see the core values clearly

Transparency is key

I think the pets and UI and cute concept arts along with evolutions and all the visual stuff really drags people in to stay for more than just lfg. Best way to go about it is after lfg the people who continue earning XP from pets is where the other parts should come from.It should be a equation that takes account the duration of consistent time XP is earned then the value along with community overall

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