How-To: SNS tokenomics configuration

Goal

• This intention of this page is to collect material enabling teams to choose a tokenomics set-up for their SNS DAO.
• Furthermore, it should help potential participants of SNS decentralization swaps to review proposed SNS tokenomics configurations.

SNS tokenomics concepts

The SNS governance framework is a configurable version of the NNS governance framework. It can be fully configured via the SNS initilization file, which contains a detailed description of all parameters.

A key element of SNS governance is the SNS reward framework, consisting of the following main elements:

• Determination of the total reward pool: The total pool of voting rewards for a given day is calculated as total supply * voting reward function R(t) / 365.25.
• Voting power of neurons: Voting power is a function of stake, dissolve delay and age of a neuron.
• Allocation of reward pool: Rewards are allocated to neurons in proportion to the exercised voting power on proposals that are settled on given day.

Further information on SNS rewards can be found here.

During an SNS decentralization swap, community members can participate directly in an SNS by swapping ICP in exchange for SNS tokens. This is called direct participation. If the swap is successful, swap participants will receive a basket of SNS neurons with equal stake.

Community members can also indirectly participate in an SNS swap via the Neurons' Fund (NF). Via this fund, NNS neuron holders can allocate their maturity towards supporting future SNSes. The size of the participation of the NF in a particular SNS swap, is determined via the Matched Funding scheme which links the fund participation to the direct participation. Further information on the Neurons' Fund can be found here.

SNS tokenomics training & tools

Via this spreadsheet tool you can assess SNS tokenomics configurations. In order to use the tool and modify input parameters, please make a copy. The tool covers

• SNS input parameters: Contains all tokenomics parameters for SNS initialization, e.g. voting reward rate, swap parameters, initial token allocation, etc.
• Token price range: Visualizes the minimum & maximum funding target vs the amount of tokens swapped, as well as the token price range in ICP and USD.
• Voting power assessment: Visualizes the initial token allocation and voting power. It is further possible to parametrize and simulate 51% attacks.
• Total supply over time: Simulates how total supply of SNS tokens could develop over time.

Frequently asked questions

• How many and what kind of neurons do you receive when directly participating in an SNS swap ?
  • "In an SNS initialization, a project defines the number of SNS neurons and their dissolve delay range. For instance, a neuron basket with 3 neurons and a 1-month interval will result in neurons with dissolve delays of 0, 1, and 2 months."
• How precisely do the minimum and maximum funding targets influence the swap ?
  • "The swap fails if the minimum funding target is not met within the swap window. Conversely, if the maximum funding is reached, the swap concludes immediately."
• What should projects consider when setting the minimum and maximum funding targets?
  • "Set a realistic maximum funding target to create scarcity and drive token demand, as reaching this target ends the swap, possibly excluding some participants. A very high maximum can lead to a post-launch price drop, while a very low maximum might limit participation and miss funding opportunities."
• What considerations are there when choosing the minimum stake of SNS neurons?
  • "The minimum stake is the lowest amount of SNS tokens required for a neuron. A lower value increases accessibility for those wanting to participate with fewer tokens. However, with a technical limit of 200K neurons in an SNS, a very low minimum stake might lead to too many small neurons."
• What should be considered when setting the minimum dissolve delay for SNS neurons?
  • "The minimum dissolve delay is crucial for voting eligibility. It encourages prudent, long-term voting as tokens are locked up. It also offers some defense against attacks, especially those funded by borrowed resources. However, if an attacker gains 51% of the voting power, the minimum staking period becomes irrelevant.

Background material

• Overall intro to SNS https://internetcomputer.org/sns/
• Tokenomics of a DAO: https://internetcomputer.org/docs/current/tokenomics/sns/tokenomics