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Supply & Demand Dynamics

Token Supply

Umoja has a fixed supply of 3 billion tokens, with $UMJA being deflationary long-term and increasing in value as the protocol’s AUM (or TVL) grows. $UMJA can be staked in the Governance Pool for 20% of the protocol’s performance fees, paid in fully collateralized smartcoins like $yBTC, $yETH, and $ySOL. As $UMJA supply decreases and AUM grows, smartcoin rewards to $UMJA stakers rise, boosting $UMJA's value.

Despite its deflationary nature, $UMJA has key emission sources:

  • Token Unlocks: Community sale participants, team members, KOLs, and investors receive unlocks over four years.

  • Smartcoin Minting Rewards: Users minting smartcoins with collateral earn $UMJA based on the USD value of smartcoins minted. The emission rate halves every $100M worth of smartcoins minted.

  • Working Lottery: $UMO holders can win randomized $UMJA rewards bi-weekly based on recent protocol usage. These rewards, within the context of the token's overall annual inflation rates, are relatively small.

$UMJA’s deflation comes from burn fees, where $UMJA is burned to redeem smartcoin collateral. Initially, burn rates exceed mint reward rates, ensuring deflation of $UMJA's fixed supply.

Supply & Demand Flywheel (Growth)

Umoja's tokenomics seeks to optimize two objectives:

  1. Maximize the circulating liquidity of smartcoins.

  2. Maximize the demand for $UMJA, the protocol's native asset.

To achieve this, the protocol has implemented the following incentive / disincentive mechanisms:

  1. UMJA is only earned via smartcoin minting.

  2. Performance fee rebates are earned through UMJA & smartcoin staking.

  3. UMJA must be burned to redeem the underlying collateral of smartcoins.

The growth flywheel at the core of the protocol's function is the following (as shown below:

I. Mint Smartcoins to Safely Monetize Blue-Chip Crypto

Smartcoin minters only mint smartcoins due to their compliance, principal protection, institutional-grade protection of collateral, and, of course, yield-bearing capabilities.

To further incentivize smartcoin minting, the protocol disburses UMJA mint rewards, which can be staked to the Governance Pool to earn a performance fee rebate back to the minter.

II. Stake UMJA to Earn Performance Fee Rebate

Umoja's Governance Pool serves as a multi-pronged incentive mechanism to minimize UMJA circulating supply, increase smartcoin supply, and increase governance participation. Users who stake UMJA to the Governance Pool, accrue several benefits by doing so:

  1. Accrue Voter Influence: The longer and higher amount a user stakes their UMJA, the more $UMO they accumulate. $UMO is a non-transferable voting token used to cast votes on Snapshot for polls and proposals. These votes influence key economic parameters of the protocol, such as the performance fee, mint rewards rate, and burn fee rate.

  2. Accrue Smartcoin Rewards: The Governance Pool receives 20% of the protocol's performance fees from smartcoins. These fees are distributed to stakers based on the time and amount of UMJA staked, acting as a performance fee rebate to reduce costs for smartcoin minters and enhance their APYs.

  3. Earn Working Lottery Eligibility: All $UMO holders are automatically eligible to receive bi-weekly rewards from the protocol's Working Lottery, which rewards governors with UMJA rewards in proportion to their activity on the protocol.

III. Stake Smartcoins to Earn Performance Fee Rebate

Smartcoin holders can stake their tokens in the Yield Stabilization Fund to earn a share of performance fees, provided the funds aren’t needed to protect against negative yield. This offers an alternative to swapping or burning smartcoins, reducing circulating supply and deepening liquidity.

UMJA Mint Rewards & Burn Fees

To incentivize users to mint smartcoins, disincentivize them to burn smartcoins, purposely create an arbitrage market to increase recurrent usage of the protocol, and make the UMJA token deflationary in the long-term, I propose the introduction of UMJA mint rewards and UMJA burn fees.

To incentivize users to mint smartcoins - the most important function of the protocol - they will be rewarded with UMJA tokens using the mint reward rate, mR. Initially,

mR = x UMJA / $1 USD of Smartcoins Minted

Similarly, to disincentivize smartcoin burning and minimize the operational costs of unwinding trades, users will have to pay an UMJA burn fee using the burn fee rate, bF. Initially,

bF = y UMJA / $1 USD of Smartcoins Burned

x and y, the rates at which mint rewards and emitted and burn fees are assessed respectively, will be maintained within narrow, but asymmetric numerical range (e.g., x = 1, y = 1.15) to encourage minting and burning smartcoins, driving arbitrage opportunities where users mint and burn smartcoins depending on the market price of yBTC, keeping liquidity active.

By purposely creating a price gap, arbitrageurs will drive yBTC prices back towards equilibrium by engaging in swaps, minting, and burning, ensuring that the protocol’s activity remains high. Both mR and bF will be governable parameters so that governance may fine tune arbitrage opportunities based on observed market behavior.

Emission Schedule & Epochs

The UMJA rewards emission schedule will be based on the USD amount of smartcoins minted, similar to how Bitcoin rewards BTC based on the approximate number of blocks produced. Every $100M of smartcoins minted, the protocol enters the next emissions phase (i.e., each epoch is every $100M minted smartcoins) and the emissions cap is halved. The emissions schedule is the following:

Epoch
Emission Cap
Epoch Limit
Net Emissions

1

630,000,000

$100,000,000

630,000,000

2

315,000,000

$200,000,000

945,000,000

3

157,500,000

$300,000,000

1,102,500,000

4

78,750,000

$400,000,000

1,181,250,000

5

39,375,000

$500,000,000

1,220,625,000

6

19,687,500

$600,000,000

1,224,312,500

7

9,854,750

$700,000,000

1,234,167,250

8

4,921,875

$800,000,000

1,239,089,125

9

2,460,937.5

$900,000,000

1,241,550,062.50

10

1,230,468.75

$1,000,000,000

1,242,780,531.25

Mint-Burn Spread Constraints

To maintain the integrity of the arbitrage system, the spread between the minting and burning rates must remain narrow enough for arbitrage to function, but also reflect the halving emission model. Thus, we must introduce the following mint-burn spread constraints:

  • 0.5 ≧ (bF-mR) ≧ 0.1

  • mR must halve with each emissions schedule

  • bF can be adjusted dynamically based on monthly governance votes to ensure that smartcoin burns don’t become too high or low and negatively affect liquidity.

  • bF must be locked in place for a minimum of 30 days

Parameters bF and mR will be voted on and updated on a quarterly basis based on the economic performance of the protocol and broader market.

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