# SIR Token Mechanics

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

{% hint style="info" %}
SIR is deployed on three chains, each with its own token: **SIR** on Ethereum, **HyperSIR** on HyperEVM, and **MegaSIR** on MegaETH. Each chain has independent staking and emission — tokens are not bridged between chains.
{% endhint %}

## Core Functions

**1. Dividend Distribution** SIR holders can stake their tokens to earn a share of protocol fees. Fees are converted through an [auction system](https://docs.sir.trading/protocol-overview/token-auctions) and distributed to stakers, providing a direct claim on the protocol's revenue. On Ethereum dividends are paid in WETH, on HyperEVM in WHYPE, and on MegaETH in WETH.

**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
* **Dividend Payouts:** WETH on Ethereum, WHYPE on HyperEVM, WETH on MegaETH — all converted via [auctions](https://docs.sir.trading/protocol-overview/token-auctions)
* **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. Each chain emits independently at this rate.

**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:

{% embed url="<https://twitter.com/Fiskantes/status/1426906528276271106>" %}

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 50% of vault fees to SIR stakers
* **Proportional Rewards:** Higher fee share earns proportionally more SIR
* **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 suitable DEX 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:** $$\sqrt{\sum f\_i^2} \leq 50%$$

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.