Sui AMA recap (text version): Tokenomics with Sui Head Economist Alonso de Gortari
Record of the AMA is available on Sui Twitter
Sui does really have the potential to be a game changer in terms of how blockchain works and eventually delivers use cases that can onboard the next billion of users to Web 3.
What’s your view on tokenomics and blockchain?
- Tokenomics is one of the most important parts of blockchain ecosystems and how cryptocurrencies work. There’s still a lot of room to improve the way tokenomics work along these blockchain ecosystems in terms of doing new innovation. We really need to think very seriously about how we’re going to address that. Because if we leave this issue unaddressed, potentially will end up creating really bad story. We’re thinking about how do we design a tokenomics framework that makes sense for Sui.
What’s special about Sui tokenomics?
- Crypto is becoming such a large space that it’s hard to keep track of everything that’s happening. There are lot of Layer 1 blockchains that are emerging and they work in very different ways. But what’s special about Sui is, I think, that its tokenomics are built very much in sync with the innovations in its engineering design.
- Sui from an engineering perspective has this key feature that everything that lives on chain is designed as an object. And so that, it can be a fungible or a non-fungible token. But everything lives on the blockchain as an independent object. And it means that when two separate users are running transactions on Sui, that use objects that have nothing to do with each other. They can basically be executed in parallel. This is somewhat different from what happens in more traditional blockchains where every single transaction needs to be ordered relative to each other. It means that each validator can add more computing power to make sure that they can execute these transactions in parallel and have really high TPS, low latency and deliver really good user experience. And here’s where the tokenomics comes in. If you have a chain that can handle a lot more of activity given in time, you don’t want to fall into the pitfalls of more traditional chains in which when net activity increases in the short run, gas goes up and that’s really bad for user experience.
- Tokenomics is built in a way such that this horizontal scaling, this ability of the chain to scale horizontally and to execute all these transactions at the same moment in time by adding more computing power. It’s also is built with a gas mechanism that ensures that gas fees are still low and predictable whenever this happens and that’s one of the big innovations of Sui.
- Tokenomics has the ability essentially to handle arbitrary amounts of on-chain data, and so this is useful for people that for whatever reason may want to have the metadata live on chain. From tokenomics point of view, the main thing that we’ve designed is to make sure that anyone should be able to use that on-chain storage but the only thing that matters here from a tokenomics point of view is that if you’re going to use that storage you should pay for it.
How does gas mechanism work and why is it particular to Sui?
- The first time you read about Sui gas mechanism, it sounds a little bit complex. It is designed to create the right incentives to align the interest of all of participants. When we designed the gas mechanism our high level goal was to make sure that we could have a gas mechanism that basically always delivers low and predictable gas for all users. Sui basically divides time across epochs (It’s is probably going to be about 24 hours each).
An epoch goes through user submit transactions, validators process transactions. They are sort of voting power in terms of how transactions proceed is proportional to the amount of stake they have.
- At the end of the epoch state rewards are delivered to as rewards to the validators are participating in proof of stake. In Sui validators are the ones that sat the gas price for each epoch. Collectively validators sit down at the beginning of a net block and say what is the reference gas price going to be for the setblock. That gas price is sort of communicated to all the clients and participants in the Sui ecosystem.
How do we make sure that validators don’t just set an extremely high gas price?
- Validators that have the beginning of the epoch say “I want the gas price to be relatively lowered” to others. These are going to get boosted rewards. This is a way of encouraging validators when they’re collectively setting low gas prices.
- At the end of the epoch, validators are rewarded with more stake rewards. It also penalizes validators that don’t honor the quotes that they submitted originally So we have a mechanism that promotes low reference gas price.
What about Sui token distribution?
- There will be 10 billion tokens in genesis supply. In a couple of weeks we can share the exact percentages. The distribution of tokens will replicate what is standard in most protocols. Some tokens are set aside for the Mysten labs teams team and Sui contributors, some of the tokens have been set aside for investors etc.
- There will be a public sale and we will probably deliver more information about that in a few weeks.
- A huge amount of tokens is being set aside for the Sui Foundation. This foundation’s goal is really to promote the long term growth and success of the Sui blockchain (funding conferences, documentation, hackathons, developer teams that are building on Sui etc.)
- In a few weeks we will we will give out a lot more information on what are the specifics of the token allocation & on the specifics of how the Sui foundation will work, which is an independent entity.
What will this distribution look like at mainnet?
- Most of the tokens will be locked at mainnet. There will be unlocked over the coming years.
- The public sale tokens will be liquid immediately as Sui network becomes live
- Foundation tokens as they shared to give as are delivered to a team depending on the exact framework and conditions in each specific arrangement. Those will also probably at least partially be liquid so that developer teams can start funding their projects.
There are many different blockchains but in the end it comes down to EVM it is hard to differentiate them. Do you have a perspective on the issues here?
- I think that it’s because there’s not really much incentive to develop new suitable for blockchain virtual machine execution environment. There was attempt like what Cosmos. Luna and Solana did to build on top of that. But the problem is when you develop something that is so complicated and so hard to do. It’s not really very good monetization or incentive to actually do that. The reason why you see everything comes down to VM, it’s just that there’s no reason to not to do that. But I think it’s not good for the industry.
- It’s worth pouring enough resources and effort to actually break the game and build from first principle perspective is the maximum value we can bring.
What are Sui main competitors and how can Sui outperform them?
- Web 3 is at the extremely early stage. The use cases it has been promising have not been delivered yet. If Web 3 makes it, the pie will grow by so much that there’s going to be more than enough to go around. We need to think about this of how do we onboard those billion next users and how do we create the user experience that it’s going to make it as simple as possible. We think about optimizing user experience on all fronts. Move language is something that’s very important for Sui. Move was created to make it very safe for developers to build their products. So that developers can focus on what they do best which is building stuff and delivering new products and new use cases and not having to spend enormous cycles on getting their code and looking for bugs and all that stuff.
- We shouldn’t really be competing with each other we should all be thinking about how are we actually going to bring those billion users that know nothing about crypto into Web 3 and actually build use cases that are going to serve their purposes.
How does the storage fund work and why is it suited to Sui?
- The storage fund comes hand in hand with the other part of the Sui blockchain, which is its ability to handle a lot of on chain data. If you store data on chain today, you should pay for it. We create a storage fund in which it recollects all fees that people pay when they store data. Validators have to store this huge amount of upfront data that comes from people that store data in the past.
- They should be compensated for it and get disproportionate amounts of stake rewards. If you’re not as a user you deleted that data, so no storage fees shouldn’t be paid anymore and you can have them back. That’s a fair way of thinking about storage for users, but it also creates the right incentives from economics point of view. It creates a right incentive for users to delete data whenever it makes no longer sense for them to have them on chain.
How does Sui plan to expand users and markets?
- We’re trying to address this across various verticals. We want to work very closely with the community. but also the Sui foundation as an independent entity will work very closely with developer teams to create all these use cases. In addition to that we’re working with external partners that we’ll be able to either bring their existing Web 2 type applications to Sui or to develop independence Web 3 native applications.
- I think the verticals that we particular most interesting and pushing right now is on the gaming front where we are. A lot of hurt more terrain to be covered than has been so far on the finance front this includes all both the traditional finance and De-Fi.
- The next verticals that we are interested in is digital commerce and that has to do everything payments, to peer to peer transfers, letting big merchants distributed coupons on the blockchain and letting users redeem them.
- Our 4th vertical which is everything that has to do with social media and just communication with a content creation.
- To sum up, there are four verticals (gaming, finance, digital commerce, social medias) we’re working with to expand users and markets.
How does Roadmap look and when will Sui launch it to the world?
- Our devnet is already live. If you haven’t tried it out, please do.
- We’ll give a precise date soon but in the coming weeks will probably start releasing the testnet and the incentivized testnet where the goal really is going to be make sure how we can be hardened the protocol and make sure that validators and network operations are operating smoothly.
- After we’ve done with the incentivized testnet, we’ll go to mainnet. Hopefully by the end of this year. At the mainnet Sui token will be live and it will be a fully permissionless, fully decentralized blockchain. You will have all the power of the infrastructure. You’ll have the Move programming language. You’ll have hopefully the good user experience of the suite tokenomics will give you.
- The staking, delegation and the basic structure for the gas incentives has been implemented on devnet already.
- In the incentive that we’re also planning to get a storage fund up and running and to the refund of the storage.
How do you reward Sui early contributors as the protocol grows?
- Sui is nothing without its community. This is a community project and early contributors are obviously a key element of that.
- Sui Foundation is going to make sure that those early contributors end up getting the incentives that will let them thrive both in the short term, but also in the long run.
- That would be early token allocations that will incentivize these good projects building on Sui.
- Being an early contributor to Sui will give you 2 things:
1. the first it’s just the standard first advantage that if you’re the first to create a protocol you learn a lot about how the protocol works, how to develop a smart contract on it, you start understanding how Sui users think about things and how to onboard them etc.
2. the next one is that these token will become more valuable in the future.
What happens when the big staking firm set their fees to 0 to attract delegated stake and smaller validators can’t afford to get started?
- We will we actually be a decentralized a really distributed network.
- Sui is a proof of stake system, so for the vast majority of validators most of the tokens that they hold will actually not be owned by them, but will be delegated by people who own the Sui token on their own and just want to participate in delegate proof-of-stake mechanism.
- As I said, Sui Foundation will have an enormous amount of tokens that they’re going to use to fund projects throughout the lifetime of the Sui watching. But at the beginning, most of the tokens may not be given out yet. In the meantime, that most of those tokens are going to be used for staking. That’s also good for the Sui foundation because that means it can get some of the rewards associated with those tokens.
- Sui Foundation will make a big effort to find small validators that perhaps even owned by the community and delegate tokens to them. So these small validators can compete with larger rigs.
Couldn’t the storage fund model be too costly for the use cases of short term data storage?
- The vast majority of use cases on the Sui blockchain storage fees will be negligible
- That is not something that you have to worry about now.
- You need to pay for storage every year and whenever you stop paying for that, then the data gets deleted. The reason we went for the storage model is we think it just delivers much better user experience. It’s much better for you to just write a transaction in pay the storage fees, forget about it and if you ever want to delete, then you can do so and get the rebate.
- Some users might not have the capital if they want to store a lot of on chain data. Then we will see some De-Fi types of protocols that essentially lend what is needed to pay for that storage. Once this financial ecosystem becomes more complete you’re shorting other solutions that will somewhat replicate what the rent model which is more capital efficient that has words user experience, prop up for the people that are interested in that
The next AMA
On Thursday we’re determining the time with our engineers to have an AMA around the Move programming language. Stay tuned and wait for the announcement.