> For the complete documentation index, see [llms.txt](https://paimon-finance.gitbook.io/paimon.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://paimon-finance.gitbook.io/paimon.finance/governance-phase-2/tokenomics.md).

# Token Economics

{% hint style="warning" %}
**Token Not Issued — Phase 2 Design**

**No `PAIMON` ERC-20 token has been issued on BSC mainnet** as of this writing. `esPAIMON`, `vePAIMON`, `EmissionManager`, `RewardDistributor` and the merkle-root distribution flow described below are **all design specifications**, not deployed contracts.

The only "PAIMON-named" contracts currently on mainnet are:

* `PaimonTreasury` — fund vault for Launchpad fees & redemption payouts
* `PaimonBadge` — Soulbound NFT for Launchpad participation achievements

These are infrastructure pieces, **not** the governance token. The allocation table, emission curve, vesting tiers and Boost mechanism below describe the target tokenomics that will activate when (and if) the PAIMON token launches.
{% endhint %}

## Table of Contents

* [1. Token System Overview](#1-token-system-overview)
* [2. Emission and Budget Allocation](#2-emission-and-budget-allocation)
* [3. Reward Distribution and Vesting](#3-reward-distribution-and-vesting)
* [4. Governance and Incentives](#4-governance-and-incentives)
* [5. Distribution Security](#5-distribution-security)
* [6. Treasury and Capital Circulation](#6-treasury-and-capital-circulation)
* [7. Metrics and Risk Control](#7-metrics-and-risk-control)

***

## 1. Token System Overview

> **Brief Description**: The governance model is centered on **PAIMON locked into vePAIMON**. Participation incentives (e.g., jPP staking) may distribute **esPAIMON**, which can vest into **PAIMON** and optionally be locked into **vePAIMON** to join governance.

### Token Stack

| Token/Certificate | Type                           | Total Supply/Cap                             | Core Function                                                                                                                               | Issuing Entity                |
| ----------------- | ------------------------------ | -------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- |
| **PP**            | ERC-20 (ERC-4626 Vault Shares) | Varies with Prime Vault size                 | Prime Vault Shares, NAV Pricing, Redemption Three-Channel Access, DEX Trading Assets                                                        | Prime Vault (ERC-4626)        |
| **sPP**           | Tranche Shares                 | Varies with Tranche Vault size               | Fixed-income tier (e.g., 4%), priority repayment, no governance participation (see [Tranche Vault](/paimon.finance/products/products.md))   | Tranche Vault                 |
| **jPP**           | Tranche Share                  | Varies with Tranche Vault size               | Exposure to downside risk for leveraged returns; can be staked to earn esPAIMON (see [Tranche Vault](/paimon.finance/products/products.md)) | Tranche Vault                 |
| **PAIMON**        | ERC-20                         | 10,000,000,000 (Hard Cap)                    | Governance, staking, liquidity incentives, external incentive assets, protocol value capture vehicle                                        | EmissionManager + Treasury    |
| **esPAIMON**      | ERC-20 Vesting                 | Subject to emission budget/quota constraints | jPP Staking Mining Rewards; Can be vested to unlock as PAIMON; Also usable for Boost                                                        | Reward Distributor / Treasury |
| **vePAIMON**      | ve (Voting Escrow)             | No cap                                       | Gauge Voting, Emission Allocation, Protocol Fee Sharing (per governance charter)                                                            | Voting Escrow (vePAIMON)      |

### Token Allocation

| Party                     | Percentage | Liquidity / Vesting Term                                     |
| ------------------------- | ---------- | ------------------------------------------------------------ |
| Strategic Round           | 10%        | 6M cliff + 18M linear                                        |
| Private Round             | 10%        | 6M cliff + 18M linear                                        |
| Team                      | 15%        | 12M cliff + 36M linear                                       |
| Advisors                  | 5%         | 6M cliff + 24M linear                                        |
| Ecosystem                 | 5%         | 0–3% at TGE + 12–24M milestone-based release                 |
| Community                 | 30%        | Long-term emission; primarily via esPAIMON / delayed release |
| Liquidity & Market Making | 5%         | Available at TGE (multisig custody)                          |
| Foundation / DAO Reserve  | 10%        | Multisig custody                                             |
| Marketing & Partnerships  | 5%         | 0–3% at TGE + 9–12M linear                                   |
| Voting / Gauge Incentives | 5%         | 36M linear                                                   |

### Supply Conservation Rule

* **Emission Ledger**: EmissionManager maintains the "Community Emission Reserve." Each time RewardDistributor mints esPaimon, the reserve is simultaneously deducted; if the reserve reaches zero, minting fails immediately.
* **One-for-One Mechanism**: When users claim, an equivalent amount of esPaimon is first burned, then an equal amount of PAIMON is released from the Emission/Treasury inventory. This ensures the actual circulating supply remains ≤ 10B.
* **Boost Restriction**: Only "vested and converted to PAIMON/locked into veNFT shares" contribute multipliers; es still in vesting are excluded from any Boost calculations.
* **Governance Position Settlement**: Governance positions are created only by **locking PAIMON into vePAIMON**. esPAIMON must **vest into PAIMON first**. Supply accounting remains one-for-one and prevents double counting.

***

## 2. Emission and Budget Allocation

### Three-Phase Emission Curve

| Phase               | Cycle        | Weekly Base Emission | Decline                               | Stage Total |
| ------------------- | ------------ | -------------------- | ------------------------------------- | ----------- |
| Phase A: Launch     | Week 1-12    | 37.5M                | 0%                                    | 450M        |
| Phase B: Growth     | Week 13-248  | First Week 55.584M   | 1.5%/week exponential decay to 4.327M | ≈ 8.55B     |
| Phase C: Tail Phase | Week 249-352 | 4.327M               | 0%                                    | 450M        |

Phase B decay is solidified on-chain with 236 lookup tables, `EmissionManager.getBaseBudget(week)` O(1).

### Demand-Linked Adjustment

Metric Recommendations:

* **Prime TVL Increment** (Week-over-Week)
* **DEX Depth/Volume** (TWAP volume, depth, and slippage for PP/USDC pools)
* **Premium/Discount Deviation** D\_t = |P\_mkt/NAV - 1| (for risk control reduction, not boosting)

Adjustment Strategy:

* Growth/Cold Start Phase: Benchmark Emission × 1.00
* Insufficient Liquidity (High Slippage/Low Depth): Allocate more budget toward DEX/LP incentives
* Deviation persistently nears protection band: Reduce incentive release speed

### Three-Channel Budget Allocation

| Channel                      | Default Allocation | Sink                        | Description                                              |
| ---------------------------- | ------------------ | --------------------------- | -------------------------------------------------------- |
| Prime Growth Incentive       | 40%                | Prime/Tranche Related Gauge | Skewed toward risk-taking activities (e.g., jPP staking) |
| DEX/LP Incentives            | 40%                | Gauge for PP/USDC Pools     | Guide secondary liquidity depth and price discovery      |
| Ecosystem / Gauge Incentives | 20%                | Treasury / Incentive Budget | Launchpad partnerships, external incentives              |

Unused budget is returned to the Treasury via `reclaimUnused(week)` after the cooling-off period.

***

## 3. Reward Distribution and Vesting

### Multi-Tier Vesting (User Selected)

| Tier     | Vesting Period | Reward Coefficient | Early Exit Penalty             |
| -------- | -------------- | ------------------ | ------------------------------ |
| Fast     | 90 days        | 0.6×               | 50% unvested portion forfeited |
| Standard | 365 days       | 1.0×               | 50% unvested portion forfeited |
| Loyal    | 540 days       | 1.2×               | 60% unvested portion forfeited |

### Example Calculation (baseReward = 100)

| Tier     | Community Emission Quota | User's Actual Total Claim | Remarks                             |
| -------- | ------------------------ | ------------------------- | ----------------------------------- |
| Fast     | 100 × 0.6 = 60           | 60                        | Short-term release, discount factor |
| Standard | 100 × 1.0 = 100          | 100                       | Benchmark Tier                      |
| Loyal    | 100 × 1.2 = 120          | 120                       | Long-term incentive, multiplier     |

### Boost Mechanism

#### Boost Inputs

* **Base**: baseline multiplier granted to all eligible positions
* **Activity / Stake Boost**: derived from qualifying activity (LP, jPP staking, etc.)
* **Governance / ve Boost**: derived from vePAIMON voting power

#### Eligibility Rules

* User holds an active qualifying position
* User's vePAIMON voting power is non-zero
* User complies with transfer cool-down / anti-flipping rules

#### Key Points

* **esPAIMON does not carry governance rights** - it cannot vote
* Governance participation requires **PAIMON locked into vePAIMON**
* Boost multiplier has a soft cap (e.g., 1.5×)

***

## 4. Governance and Incentives

### vePAIMON Rules

* Lock-up periods: 1 week to 4 years
* Voting power decays linearly toward unlock
* NFTs are transferable with 48-hour cooling-off for voting/claiming

### Gauge KPI Constraints

| Condition              | Action                           |
| ---------------------- | -------------------------------- |
| Score < 60 for 1 week  | maxWeight reduced by 30%         |
| Score < 60 for 2 weeks | maxWeight further reduced to 40% |
| Score ≥ 70 for 2 weeks | Weight recovery                  |

### Nitro External Incentives

* External projects `propose()` and require VE voting approval
* Incentive assets locked for 4 weeks
* Distributed to eligible voters/LPs from preceding two weeks
* Early termination requires governance approval

***

## 5. Distribution Security

### Security Measures

1. **Multi-signature**: `submitRoot(newRoot, signatures)` requires 3/5 EIP-712 signatures
2. **Cooling-off period**: Root enters `pending` status for 6 hours
3. **Rollback Window**: Old root claimable for 24 hours, then frozen
4. **Distribution Service**: Generates merkle.json, root.json, and summary.txt

### Flow

```
NewRoot → Pending (6h) → Cancel OR Activate
                              ↓
                        Old root claimable 24h
                              ↓
                        Old root frozen
```

***

## 6. Treasury and Capital Circulation

### Income Recirculation Formula

Monthly `reportIncome(income)`:

* **40%** → Governance Value Capture (Repurchase PAIMON + lock as vePAIMON)
* **40%** → Ecosystem Incentives (external incentive matching)
* **20%** → Operational Reserve (audits, operations, compliance)

### Adaptive Liquidity Weighting

| Condition                         | Action                                      |
| --------------------------------- | ------------------------------------------- |
| Insufficient DEX depth            | Increase DEX/LP incentive weight            |
| Deviation nearing protection band | Reduce short-term release, shift to vesting |
| Normal                            | Revert to default weights                   |

### Data Transparency

Weekly automated report publishing:

* Circulating supply (including unvested amounts)
* PP/NAV/Deviation and DEX Depth/Volume
* Emission Utilization Rate
* Gauge weightings and KPIs
* Treasury asset table

***

## 7. Metrics and Risk Control

### Operational Metrics

| Metric                    | Target/Threshold | Trigger Action                                              |
| ------------------------- | ---------------- | ----------------------------------------------------------- |
| Prime/DEX Health          | 70%–90%          | Below 60% → Review incentives; Above 95% → Adjust weighting |
| Unused Budget Return Rate | < 10%/quarter    | Review claim processes                                      |
| Loyal Tier Proportion     | 20%–35%          | < 15% → Discuss adjustment                                  |
| Gauge Performance Score   | ≥ 70             | Automatic weight restriction for consecutive low scores     |

### Risks and Mitigation

| Risk                        | Explanation                    | Mitigation                                                   |
| --------------------------- | ------------------------------ | ------------------------------------------------------------ |
| Oracle Data Manipulation    | Keeper Malicious or Data Delay | Multi-source validation, threshold limiting, emergency pause |
| Spread Arbitrage            | Rapid Tier Switching           | Weekly Limits, Behavior Monitoring                           |
| Guard process failure       | KPI Not Updated                | Backup daemon + manual override + alerts                     |
| Multi-signature congestion  | Delayed Root Activation        | Schedule adjustments                                         |
| Treasury repurchase impacts | AMM Liquidity Shortage         | TWAP/Batch Execution, Slippage Cap                           |