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Protocol governance and tokenomics
The $SHELL governance token has not been released yet. There are lots of FAKE airdrop scams out there. Always check the official website, Discord and Twitter before trusting any airdrop announcements.
$SHELL is the ticker for the upcoming (but not yet released) token governing Shell Protocol. The token name and ticker $SHELL was decided by a community vote. Earning Shell Points will make you eligible for receiving the $SHELL token when it is released, as was decided by a Toucan vote. $SHELL token holders will collectively control the Shell DAO (not yet live) via voting.
Because Shell is a neutral DeFi platform intended as a public resource, the tokenomics were designed with the philosophy of governance minimization—to reduce any possibility of compromising our core principles.
This page covers information originally shared in the following blog posts, linked for reference.
How does Shell Protocol generate value? Shell is like a nightclub that is free to enter but costs money to leave. You can stay in the nightclub as long as you want—days, weeks, even years, all the while having a great time without paying a cent. It’s only the moment you walk out the door that you pay an exit fee.
Wrapping tokens into Shell’s accounting layer, the Ocean, is free. It is also free to move your tokens around Shell, whether that means transferring your tokens to other addresses within the Ocean, or using them with various applications in the Shell ecosystem—no matter if you make ten transactions or ten thousand. However, if you want to unwrap tokens, aka remove your liquidity from the Shell ecosystem, you have to pay a percent fee. (The current fee is set to zero). As more people use Shell, more volume will flow in and out of the Ocean, and the protocol collects more revenue.
The Shell DAO will be the beneficiary of this revenue. $SHELL token holders will collectively control the DAO via voting. Hence, $SHELL tokens directly benefit from the revenue collected by the Ocean.
How does $SHELL govern Shell Protocol? By design, the Shell DAO has limited control over the Ocean. Here are some things it cannot do:
- It cannot manipulate or confiscate user assets (Shell is 100% non-custodial)
- It cannot freeze the protocol (users can always withdraw their assets at any time)
- It cannot block new primitives from joining (anyone can build and deploy on Shell)
In fact, the Shell DAO can only do three things:
- 1.Increase or decrease the unwrap fee (maximum fee is 0.05%)
- 2.Transfer the accrued protocol revenue to another wallet
- 3.Change the protocol beneficiary to another wallet
The fee has a hard-coded cap of 0.05% to prevent wild rent-seeking behavior. It’s also a security measure—in case the DAO is compromised, an attacker can’t lock user tokens in the protocol by setting the fee to 100%.
What to do with the protocol revenue will be up to the DAO, and thus up to the $SHELL token holders. For example, they could distribute the funds amongst themselves. Or, they could reinvest the capital into further developing the protocol. Or, something else entirely.
Why does Shell even need a token? How will $SHELL benefit the protocol?
Building Shell Protocol and upgrading it in the future costs money—people don’t work for free, after all. Unless there is some way to generate value, the protocol won’t be maintained. Many public resources have fallen into this trap, especially in open-source technology.
Because $SHELL token holders are simultaneously the beneficiaries of Shell Protocol’s revenue, they are incentivized to reinvest in the protocol. With sustainable development of the product and ecosystem, token holders can grow those revenues in the future.
Without you, the future $SHELL token holders overseeing its development, Shell Protocol won’t be sustainable in the long run.
At the time of the token generation event (TGE), 200 million Shell tokens will be created. These will be apportioned as follows:
- 80M - Investors, Core Team and Development Company
- 40M - Initial Airdrop
- 50M - Post-TGE Incentives
- 30M - DAO Treasury
The Shell DAO will have the power to mint more tokens beyond the 200 million supply apportioned above, but that would require a governance vote.
At the end of each season, users will be able to claim $CRAB based on the number of Shell Points earned that season. These Crab tokens will not be buyable, sellable, or tradable. When the Shell governance token ($SHELL) is released, $CRAB will become 1:1 redeemable for $SHELL tokens (*Cowri Labs (the company building the core protocol) is a US-based entity. Regulations in the US regarding cryptocurrency are currently unclear. Unforeseen restrictions may apply). Every crab needs a shell!
Why Crabs? In short, Shell Points are computed off-chain based on users’ on-chain activity on the protocol. This makes them easier to calculate but also less "real" from a web3 perspective. With on-chain $CRAB allocation, your Crabs are yours. No one can take them away from you.
In addition, having $CRAB on-chain will allow us to practice more decentralized governance prior to the $SHELL token generation event. Unlike Shell Points, we will be able to use $CRAB with web3 governance platforms like Snapshot. These votes may help determine aspects of the future Shell DAO.
More broadly, the release and allocation of $CRAB will serve as a good intermediate step before the full launch of $SHELL. Like going to college before entering the real world, giving everyone Crabs will get us ready for the real deal when it happens.
As explained above, $CRAB will be redeemable for $SHELL. It is only necessary pre-TGE. Therefore, a total of 40 million Crabs will be created, split across seasons as follows:
- Season Zero (Shell v1): 13M $CRAB
- Season One (Shell v2 Guarded Launch): 11M $CRAB
- Season Two (May 22, 2023-TBD): 9M $CRAB
- Season Three (Tentative): ~7M $CRAB
The allocation for Season Three is tentative, depending on Shell’s timeline. The sooner we reach the token launch, the shorter the third season will be. It is even possible that we will reach the token launch so quickly, there won’t be time for Season Three at all. As such, the final 7M $CRAB allocation may be reduced prior to the start of Season Three, and any remaining $CRAB will be distributed as a bonus to existing holders. For example, if at the end of Season Three, 4M $CRAB is unallocated, then the remainder will be given to existing $CRAB holders pro rata. In other words, everyone’s $CRAB holdings would increase by 10% in this example (4M is 10% of 40M).
For Seasons 1–3, $CRAB will be distributed proportionally based on Shell Points. At the close of each season, we will tally the total points accumulated by all users. Then, $CRAB will be evenly distributed based on the percentage of total points earned by each user. Note that it’s not a 1:1 conversion.
For example, say 1 billion Points were earned across all users in a season. If Alice earned 10 million Points, she holds one percent of that season's total Points, which means she will get one percent of that season's $CRAB allocation. If the total $CRAB allocation for the season is 10 million, Alice will thus earn 100,000 $CRAB, which will become 100,000 $SHELL after the token launch.
As stated earlier, all Shell Points will be reset at the end of each season. The compounding points feature was discontinued at the end of Season One.
The $CRAB distribution for Season Zero was calculated based on a formula tracking liquidity provision over time in Shell v1, from its launch up until September 1, 2022. This allocation has already been finalized. If you were an LP in Shell v1, congratulations and please don’t forget to migrate your tokens (Shell v1 is now retired)!