On the Tokenomics of Xeon Protocol

The crypto space is rapidly evolving, and for most of the cycle so far, decentralized finance (DeFi) has taken a backseat to memecoins and other non-utility projects. Projects like these that generally feature fly-by-night devs require different trust assumptions than more robust projects building in the space, many of which are manifest in the tokenomics.

In the current market, certain things have become synonymous with a "safe" project such as burning the liquidity pool (LP), renouncing the contract, and teams holding a negligible portion of tokens. The reality is much more complicated. While these things may be fine for memecoins, for a project like Xeon Protocol that is building long-term utility, these things simply do not work.

Since many new entrants to the space have only been exposed to non-utility tokens, this post will serve not only to breakdown the Xeon Protocol tokenomics and vesting schedule, but to educate people on why we've made these decisions. It is our duty as a DeFi project focused on risk-management to be upfront and transparent so all stakeholders can make informed decisions.

As a protocol utility token, XEON plays an important role in the Xeon ecosystem. It will initially be used to bootstrap our incentivized testnet, and will be utilized in our advanced staking pools that help secure the protocol and distribute yield to participants. These protocol-level requirements played an important role in our distribution of tokens, specifically our linear vesting schedule which was designed to complete prior to the mainnet launch of Xeon Staking so that tokens could be used for their ultimate purpose: being put to work inside the protocol!

The XEON token generation event (TGE) took place on June 24th, 2024 at block 20161704 on the Ethereum network. The full supply of XEON tokens was minted with a total supply of 100 million and 5 ETH was supplied to the LP . The token was launched through our incubator—PROOF Platform, which is the reason certain functions like whitelist are present in the contract.

The supply of XEON was initially distributed as follows:

• Liquidity: 70% (70m tokens) locked in a Team Finance token locker for 60 days by PROOF Platform.

• Ecosystem Growth: 18.5% (18.5m tokens) vested linearly for 60 days through Sablier to a 2/3 multi-sig wallet controlled by core team members.

• Team Tokens: 5% (5m tokens) vested linearly for 60 days through Sablier in individual streams to core team members.

• Marketing: 5.5% (5m tokens) with 3m tokens paid to our marketing manager, 2.5m to KOLs. Of the KOL allocation, 0.2m was paid upfront, and 0.3m tokens vested linearly for 60 days through Sablier.

• Incubator Fees: 1% (1m tokens) paid out to PROOF Platform.

Both the XEON token and all Xeon operations (token administrative functions, protocol contracts, and treasury management) are owned and controlled by a Safe multi-sig wallet which is managed by the three core team members. All transactions must be approved by 2/3 of the team, which ensures that no single person can alter any part of the token or protocol, either accidentally or maliciously.

We have taken great care to ensure that our wallet security is impeccable. The three wallets that control the Safe account are all managed securely to ensure that access to our multi-sig cannot be compromised. Each one belongs to an individual team member and private keys are securely stored in hardware wallets or accessed through sandboxed environments. These wallets are strictly for Xeon Protocol management and are only connected to dApps that fall within company procedures (ex: Safe, Sablier, or ENS).

Even in the unlikely event that a single team member's wallet is compromised, requiring 2-of-3 signatures allows us to quickly replace the affected wallet without compromising the security of the entire protocol. At the time of writing we are exploring procedures for Self Custodial Recovery to safeguard against a worst-case scenario.

Using a multi-sig wallet prevents a single point-of-failure and ensures the entire team has a say in all onchain transactions.

The XEON token has a number of administrative functions that require active management and make it so we cannot simply renounce the contract:

• Tax Revenue: Xeon Protocol is funded by a 5% tax on both buys and sells through LP. This is standard for the industry and allows us to continuously fund protocol growth without requiring us to dump our XEON holdings. Revenue is dispersed through a Splits contract where it's divided between ecosystem and marketing.

• Max Transaction Amount: In order to prevent large sums of tokens from being moved at once we have a limit on the amount of tokens that can be included in a single transaction which is currently set to 500k XEON (0.5% of the total supply).

• Max Wallet Amount: To prevent whale activity in the early growth stage of XEON, there is also a limit on the amount of tokens a single wallet can hold, which is currently set to 1m XEON (1% of the supply).

Certain addresses that are necessary for protocol operation are excluded, including protocol multi-sig wallets, our Uniswap Pool, LP Lock, and vesting contract. None of the token administrative functions have or will ever be used to give anyone an unfair advantage. Even as the CTO of Xeon Protocol, I pay the tax and am restricted by the transaction limit like everyone else.

By retaining ownership of the XEON token contract we can adjust parameters as needed to best fit the needs of the protocol and community.

When we launched XEON, our LP was locked for 60-days, a timeframe that was part of our launch through PROOF Platform. After the lock period finishes, the LP will be released to our team multi-sig wallet, at which point we will determine the most secure way to protect our LP in a manner that still allows it to create the most value for all stakeholders. When that time comes we will keep the community informed on our decision-making process and reasoning.

"Dev, why isn't the LP burned?"

This is a question that comes up a lot. At some point in the last year, with the rise of memecoins, burning the LP (sending the token or ownership to the zero address) became synonymous with "safe" but the reality is much more complicated.

There are many ways to secure liquidity without burning it, and new advances in LP management are coming out all the time. Our LP is not burned as this removes any possibility that the supplied tokens and ETH can be used in potentially innovative ways in the future. Burning renders all the value in that LP useless for anything aside from swapping between two specific tokens.

Soon we will see new types of primitives in the LP space (like v4 hooks and yield instruments) which will require liquidity controlled by new contracts. Projects who currently have their LP burned will be unable to fully utilize these things.

We have positioned Xeon to always be at the cutting edge of new developments in the DeFi space, and we will communicate any decisions regarding potential future liquidity updates with the community. In the meantime, we will continue to utilize best-practices and established, audited contracts to secure our LP.

Burning the LP prevents us from taking advantage of future advances in liquidity management and makes it so we cannot adjust important functions to adapt to changing market conditions.

Out of the 100m supply of XEON tokens, 23.8% (23.8m) are currently vesting over a 60-day period through a linear stream on Sablier. The following tokens are currently vesting:

• 18.5m tokens to Xeon ecosystem wallet

• 5m to individual core team member wallets

• 300k to pre-launch marketing partner's wallet

Sablier is a respected name in DeFi with a track record that dates back to 2019, much longer than most token management solutions currently being used. They have processed over $1.5b USD in volume, are trusted by many DAOs and onchain organizations, and their contracts are fully audited by six leading security firms. Sablier is completely permissionless, they do not use upgradeable proxies for their vesting streams, and their team has zero ability to interfere with the token locks or vesting schedules.

As a DeFi protocol focused on risk-management, Sablier was the obvious choice for distributing our tokens.

"Dev, why vest and not lock?"

To begin with, vesting prevents a large amount of tokens from becoming immediately liquid since the tokens are streamed in real-time to the recipients. For our ecosystem token allocation, this allows us to have access to a steady stream of XEON that can be used to reward participants in our incentivized testnet campaign which is starting soon.

Secondly, vesting can help assuage investor concern over market dumping or price volatility that usually accompanies a large portion of tokens unlocking at once. If, as an investor, you are concerned about a paper-handed team, insuring that no one receives a lump sum of tokens that could potentially be dumped on the market is preferable.

"Dev, why 60-days?"

The vesting schedule is heavily influenced by our roadmap and the release of our testnet campaign and Xeon Staking pools. By having team tokens unlock slowly over the next 60 days, we as the core team can utilize our tokens in protocol staking as soon as it is released. As stated before, XEON is a utility token who's ultimate purpose is to be put to work within the protocol. We are extremely proud of what we are building, and having our tokens ready for the launch of staking means we get to bet on the protocol long-term from the start.

XEON is meant to be staked and put to work inside of the protocol!

Xeon Protocol is all about risk-management, and that extends beyond our protocol services to the way we do everything. Because of the trust assumptions that investors have to place on us, our team is fully KYC'd through Assure DeFi. We are active members of our community and people know how to reach us. We believe the best way to build is to build in public, both so the community is up-to-date with development progress and to hold ourselves accountable to the high standard we set for Xeon Protocol.

I've personally been involved with the crypto community since 2014 and know that the most valuable asset in this space is your reputation. That's why I want every part of the Xeon stack to be as open and transparent as possible.

We have our entire organization tree onchain through Hats Protocol which includes our team, pointers to all deployed contracts and wallets, and allows us to set up secure, programmable roles for things like publishing code or casting on behalf of Xeon Protocol on Farcaster.

By using onchain management for credentials, we can eliminate certain risks to the community like our social media account being compromised.

To make it easier for the community to audit what we as the core team do, and to prevent phishing attempts on our community we are using Ethereum Name Service (ENS) to resolve all of our onchain addresses so users can be 100% sure they are interacting with official Xeon assets.

Multi-Sig Addresses

Core Team (Multi-Sig Signers)

Deployed Contracts

By having human-readable names for all of our onchain assets, community members can simply type any of our ENS into Etherscan and immediately find the associated contract. You can also verify our socials and contact info through our ENS profile.

Using ENS also provides an extra layer of protection for us doing internal transactions, removing any uncertainty that comes with entering a hex address when we're moving funds or assigning admin roles.

ENS can be used to verify contracts and addresses you're interacting with.

We have such an incredible community that has formed around Xeon Protocol, and are excited to see it grow as we release innovative new DeFi products. Thank you all for your trust as we go on this journey, we would not be here without you.

As we get closer to our testnet and mainnet protocol launch, we will make a public Trello board available to the community so they can follow along with progress and give us feedback along the way. You can find an up-to-date list of all official Xeon links on our Linktree.

We are looking forward to a bright future for Xeon and DeFi.

Jon
CTO - Xeon Protocol

Website: https://xeon-protocol.io/
GitBook: https://docs.xeon-protocol.io/documentation
Warpcast: https://warpcast.com/xeonprotocol
Twitter: https://x.com/XeonProtocol
Telegram: https://t.me/XeonProtocolPortal
Medium: https://medium.com/@xeonprotocol