Tokenomics refers to the economic principles governing a blockchain's native token. It combines "token" and "economics" to describe how the token functions within its ecosystem. For the Sui network, the native token is SUI, which powers transactions, enables staking, and facilitates governance.
Proof of Stake Mechanism
Sui operates on a proof-of-stake (PoS) consensus mechanism. Validators secure the network by locking SUI as collateral, earning rewards for processing transactions. Users can delegate their SUI to validators, receiving a share of the rewards proportional to their stake. Delegations can be adjusted or withdrawn at epoch boundaries, providing flexibility for participants.
Key Stakeholders in the Sui Ecosystem
The Sui economy involves three primary stakeholder groups, each contributing to network security and functionality.
- Users: Interact with the network by submitting transactions, creating digital assets, and using smart contracts.
- SUI Token Holders: Stake tokens to validators, participate in consensus, and engage in on-chain governance.
- Validators: Process transactions, maintain network integrity, and earn staking rewards.
The SUI Token: Utility and Function
The SUI token serves multiple critical functions within the network, distinguishing itself through versatile utility.
- Staking: Participants stake SUI to engage in the proof-of-stake mechanism.
- Gas Fees: SUI denominates computational and storage costs for network operations.
- Liquid Asset: Functions as money within applications, enabling exchanges, value storage, and smart contract interactions.
- Governance: Grants holders voting rights on protocol upgrades and key decisions.
Total Supply and Scarcity
SUI has a fixed maximum supply of 10,000,000,000 tokens. This cap ensures scarcity, supporting long-term value appreciation. The circulating supply is dynamically influenced by the storage fund, which adjusts based on on-chain data requirements. Higher storage needs increase the fund size, reducing circulating SUI and creating deflationary pressure.
Distribution Mechanics
At each epoch's start, key events unfold: staking allocations, gas price settings, and storage fund adjustments. The protocol calculates total stake by combining staked SUI and the storage fund. Throughout the epoch, users pay gas fees for transactions, and validators process them. End-of-epoch rewards distribute computation fees and subsidies to stakers, with validators receiving compensation for storage costs from the fund.
Vesting and Unlocking Schedules
Initial SUI allocations followed a one-year cliff period, preventing large-scale sell-offs early in the network's lifecycle. This vesting schedule promoted stability by gradual token release, with the cliff ending in May 2024. Such measures align with long-term growth rather than short-term speculation.
Absence of Airdrops
Sui intentionally avoided airdrops during its mainnet launch. This decision mitigated risks from bad actors, avoided potential tax complications for users, and prioritized sustainable network growth over temporary excitement.
Storage Fund: Ensuring Long-Term Sustainability
The storage fund addresses the challenge of compensating validators for historical data storage. It collects fees from transactions that add on-chain data, functioning as a perpetual pool of SUI. The fund earns staking rewards, which are distributed to validators to cover storage costs. This mechanism ensures new validators are fairly compensated for past network activity.
Rewards and Refunds
The storage fund's rewards are proportional to its size relative to total stake. Validators receive most of these rewards, with the remainder reinvested into the fund. Users deleting data receive partial refunds of their storage fees, optimizing resource allocation.
Deflationary Design
With a fixed SUI supply, increased network activity grows the storage fund, reducing circulating tokens. This deflationary model enhances SUI's store of value, encouraging long-term holding and investment.
Validator Incentives and Rewards
Sui validators receive rewards based solely on their staked amount, eliminating randomness. This approach ensures predictable earnings for honest validators, fostering network reliability.
Staking Pools and Exchange Rates
Validators manage staking pools that track deposits and rewards. Exchange rates recalibrate at each epoch, determining future withdrawal values. Deposited SUI converts to liquidity tokens at current rates, appreciating as rewards accumulate. This system allows immediate compounding, benefiting all stakers equally.
Exchange Rate Calculation
Validator pool exchange rates update epoch-by-epoch using the formula:
Exchange Rate at E+1 = (1 + (Third-Party Staker Rewards at E / Third-Party Stake at E)) × (Exchange Rate at E)
This accounts for validator commissions while maintaining a unified rewards table.
Validator Requirements
Sui's validator onboarding uses voting power thresholds instead of fixed SUI amounts. Candidates need ≥3 voting power to join, with maintenance requirements preventing degradation. This system, outlined in SIP-39, lowers entry barriers while ensuring network security.
Voting Power Formula
Voting power derives from the validator's stake proportion relative to the total network stake:
Voting Power = (S / (S + T)) × 10000
Where S is the validator's stake, T is total staked SUI, and 10000 represents Sui's voting units. Validators must meet or exceed the threshold V (e.g., 3) to participate.
Frequently Asked Questions
What is the total supply of SUI tokens?
SUI has a fixed supply of 10 billion tokens. This cap ensures scarcity, with circulating supply influenced by the storage fund's size and network activity.
How can I earn rewards with SUI?
You can delegate SUI to validators to earn staking rewards. Rewards are distributed each epoch based on your staked amount and validator performance. 👉 Explore staking strategies
Why did Sui not conduct an airdrop?
Sui avoided airdrops to prevent exploitation by bad actors, avoid legal complexities around taxation, and focus on sustainable long-term growth rather than short-term hype.
What is the storage fund's purpose?
The storage fund collects fees from data storage transactions and uses rewards to compensate validators for ongoing storage costs. It ensures fair compensation across epochs.
How do validator rewards work?
Validators earn rewards based solely on their staked SUI amount, without randomness. Rewards are predictable and distributed epoch-by-epoch.
What are the requirements to become a validator?
Validators must achieve sufficient voting power, calculated from their stake proportion relative to the network. Current thresholds require ≥3 voting power to join and ≥2 to remain active.