Ultimately, the supply $DIFF will be 326,515,151 million tokens. We believe that liquidity providers should have a strong voice in the governance of Diffusion so we want to make sure their interests are aligned with the tokenomics of the platform. This is why the incentives derived from the $DIFF token should be distributed over time to the right governance participants. For this reason, we think that $DIFF will be fundamental in our efforts to incentivize liquidity and keep it within the protocol.

Based on this assumption, the supply is subdivided into the following buckets.

Liquidity Mining Incentives: 38%

Team Vesting: 21%

Diffusion Holder Rewards: 21%

Airdrop: 8%

Reserve: 8%

Community Pool: 4%

Token Release Schedule

Diffusion will have an initially released supply of 50 million $DIFF at genesis, split evenly (25 million each) between the airdrop recipients and a strategic reserve.

Based on this model, new tokens would be released every day according to a “thirdening” schedule. This model was originally introduced by Osmosis and works just like Bitcoin halvening, where token issuance is decreased by half every four years. In Diffusion, the token issuance will be cut by a third every year.

A total of 250,000 daily tokens will be released. The token release mechanism works as follows: In the first year starting on the token launch date, there will be a total of 91,259,000 tokens released. After 365 days, this will be cut by a third, so there will be a total of approximately 61 million tokens released in year 2, around 40 million in year 3, and so on. Newly released tokens will be distributed in the following way.

Strategic Reserve

With its initial allocation of 25 million Diffusion tokens, the strategic reserve will be controlled by a multisig DAO owned by the foundation, initially composed of core contributors and some members of the cosmos community.

Part of this will be allocated to attract partners who help us provide liquidity or invest in Diffusion. Any fundraising through the DAO will be subject to vesting periods and will be transparently communicated. We also see this pool as a way to possibly diversify its reserves in exchange for other protocols’ tokens. Additionally, we want it to help us fund grants that help the development of Diffusion, especially around any initiatives surrounding DeFi use cases where Diffusion plays an important role.

Community Pool

5% of all newly released tokens go directly to the community pool. This pool can be spent by Diffusion governance and should be used to improve the value generated by the community.

We invite our community members to discuss, provide suggestions, and brainstorm ideas on new areas of emphasis that the community pool should be used to incentivize the long-term success of Diffusion.

Liquidity Mining Rewards

45% of the daily released Diffusion tokens will be used for liquidity mining rewards. Liquidity providers will be able to deposit their LP tokens and accrue Diffusion token rewards. The longer they stake their liquidity the higher their rewards. The process of selecting the pools and the corresponding rewards distribution will be announced in a separate post and will be subject to governance votes. Overall we want to make sure that LPs have a strong incentive to keep their positions within the platform and avoid mercenary liquidity providers. It’s worth mentioning that governance can decide eventually if the liquidity mining incentives should be increased, decreased, or redirected somewhere else.

Diffusion Holder Rewards (Staking)

25% of the daily released tokens will be released to reward Diffusion holders. Initially this will be done via a single-sided staking mechanism. Just like Sushiswap, we are launching a similar mechanism to SushiBar. Diffusion holders will be able to stake their $DIFF tokens and get xDiff in exchange. xSushi rewards originally come from the 0.05% fees out of the 0.3% exchange fee. For the initial months of the protocol we will however reward xDiff holders with $DIFF tokens in order not to decrease the 0.3% LP revenue as part of our launch incentives program. Depending on the level of liquidity and platform tokenomics, we are planning to start channeling 0.05% (out of the 0.3% swapping fees). We’ll involve the community in this decision.

Single-sided staking will be launched after Liquidity Mining Rewards, so the daily released tokens will go into a pool in the meantime and be added to the single-sided staking contract once it launches.

Governance can be used to change this reward mechanism and use a percentage of the fees generated in Diffusion if this suits the vision of the protocol better or even redirect Diffusion Holder rewards somewhere else other than the single-sided staking rewards.

Team Vesting

25% of the released tokens per day are in the form of vesting developer rewards. This will be a total of 69,128,788 tokens that are reserved for the development team. The development team cannot transfer or stake for xDiff, or sell these tokens until they are released. This means that the team has 0% of the tokens unlocked at genesis. They will have to work for the protocol to get their tokens released.

If someone from the original dev team is no longer part of the network, the community can choose to reclaim any unreleased tokens from the development team and redirect them to any other initiative.

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