🎩SIR Token Mechanics

How the SIR Token Works - Staking, Dividends, and Governance

The SIR token serves as the protocol's value-capture mechanism and governance backbone, designed with sustainable economics and aligned incentives at its core.

Core Functions

1. Dividend Distribution SIR holders can stake their tokens to earn a share of protocol fees. All fees are converted to WETH through an auction system and distributed to stakers, providing a direct claim on the protocol's revenue.

2. Perpetual Liquidity Incentives Unlike temporary liquidity mining programs, SIR embeds token distribution directly into the protocol's immutable contracts. This ensures continuous, predictable rewards for liquidity providers without arbitrary end dates or governance votes.

3. Future Governance Once the SIR DAO is established, token holders will govern:

• Vault selection and reward allocation for SIR emissions

• Treasury management

This creates a direct alignment: vaults generating the highest fees receive optimal reward allocation, maximizing value for all stakeholders.

Staking Mechanics

How Staking Works To earn protocol dividends, SIR holders must stake their tokens, temporarily removing them from circulation. Key features:

• Flexible Operations: Stake, unstake, and claim dividends at any time

• WETH Dividends: All protocol fees are converted to WETH via auctions for consistent payouts

• Pro-rata Distribution: Rewards proportional to your staked share

Anti-Exploitation Locking Staked SIR follows a progressive unlocking mechanism to prevent flash loan attacks:

• Initial Lock: 100% locked upon staking

• Exponential Decay: 30-day half-life unlocking schedule

  • Day 30: 50% unlocked

  • Day 60: 75% unlocked

  • Day 90: 87.5% unlocked

• Continuous Process: Unlocking occurs every second, not in discrete steps

This design prevents short-term manipulation while maintaining long-term flexibility for genuine stakers.

Token Issuance Model

Constant Emission Rate SIR tokens are emitted at a fixed rate of 2.015 billion per year, starting from zero supply at launch. This predictable, linear issuance continues indefinitely.

Why Not Capped Supply? Many protocols follow Bitcoin's model with limited supply and decreasing emissions. However, as Fiskantes explains, front-loaded emissions create unsustainable dynamics:

Our constant issuance model ensures:

• Early Participants: Benefit from easier accumulation when liquidity is low

• Future Participants: Still receive meaningful rewards when TVL is higher

• Sustainable Growth: Avoid the "death spiral" of diminishing rewards

• Mitigation Strategy: LPers can retain positions to offset dilution through rewards

Liquidity Mining Framework

Permanent Integration Unlike temporary "liquidity mining" campaigns from DeFi Summer 2020, SIR embeds rewards directly into immutable smart contracts. This creates:

• Predictable Incentives: No arbitrary end dates or governance votes

• Long-term Commitment: Permanent support for protocol liquidity

• Fair Distribution: Rewards proportional to economic contribution

Vault Reward Mechanism Selected vaults receive SIR emissions in exchange for sharing fees with stakers:

• Fee Sharing Cap: Maximum 10% of vault fees to SIR stakers

• Proportional Rewards: 10% fee share earns 2x the SIR of 5% share

• Aligned Incentives: Most productive vaults receive optimal rewards

Governance & Vault Selection

The Human Element While most protocol functions are automated, vault selection requires human judgment due to:

• Token Diversity: Various collateral types across vaults

• Oracle Limitations: Not all token pairs have Uniswap v3 pools

• Economic Complexity: Difficulty measuring true vault productivity on-chain

DAO-Driven Optimization The SIR DAO will manage vault rewards through mathematical optimization:

Reward Formula: $r_i = \alpha f_i$

Where:

• $r_i$ = Vault reward rate [SIR/s]

• $f_i$ = Fee contribution [%]

• $\alpha$ = Proportionality constant

Optimization Constraint: $\sqrt{\sum f_i^2} \leq 10\%$

This ensures rewards match economic contribution while maintaining system sustainability.

Example Allocation Two-vault scenario:

• Vault 1: $1M fees → 403M SIR/year (20%)

• Vault 2: $4M fees → 1,612M SIR/year (80%)

The mathematical framework guarantees fair, efficient capital allocation across all protocol vaults.