SEI (SEI) Tokenomika

The SEI token is the native asset of the Sei Layer-1 blockchain, which is optimized for the exchange of digital assets. The tokenomics are designed to secure the network, incentivize participation, and fund ecosystem growth, with a maximum supply capped at 10 billion SEI.

Issuance Mechanism

The SEI token supply is capped at 10 billion tokens. The issuance mechanism is primarily driven by the distribution of tokens from the Ecosystem Reserve and through staking rewards, which are initially funded by this reserve. After the initial funding phase, the ecosystem rewards become inflationary.

As of Q3 2024, the network's annualized inflation rate was approximately 7.7%, having peaked at 10.0% in Q1 2024. This inflation is used to incentivize network participation, particularly through staking.

Allocation Mechanism

The total supply of 10 billion SEI tokens was allocated at the mainnet launch across five primary categories. The majority of the tokens (51%) were allocated to the community and projects building on Sei.

The initial distribution breakdown is as follows:

Usage and Incentive Mechanism

The SEI token serves multiple critical functions within the network, primarily focused on security, governance, and utility within the decentralized finance (DeFi) ecosystem:

Core Utility

• Network Fees: SEI is used to pay for transaction fees on the Sei blockchain. Users can also pay an additional "tip" to validators to prioritize their transactions.
• Decentralized Finance (DeFi): SEI can be used as native token liquidity or collateral for applications built on Sei, including those leveraging the network's central limit order book (CLOB). Protocols can also implement SEI as their fee token.
• Governance: SEI holders who stake their tokens can vote on governance proposals, with their voting power proportional to their staked amount. Proposals can affect network parameters such as minting/distributing SEI, increasing the maximum number of active validators, or implementing native trading fees.

Staking and Incentives

Sei operates on a Delegated Proof-of-Stake (DPoS) mechanism, where SEI is used for network security and rewarding participants:

• Validator Staking: Users can run a validator node to secure the network and earn rewards. Only the top 39 validators by total stake (self-bonded plus delegated SEI) become "active validators" and earn staking rewards and network transaction fees.
• Delegating Stake: Tokenholders can delegate their SEI to an existing validator to help secure the network and receive a pro-rata share of the staking rewards, minus the validator's commission rate.
• Staking Rewards: Rewards are funded from the Ecosystem Reserve and network transaction fees. As of early 2024, the advertised Annual Percentage Rate (APR) for staking was approximately 4.46%.
• Ecosystem Initiatives: The large Ecosystem Reserve (48% of total supply) is designated to fund staking rewards, ecosystem initiatives, airdrops, and incentives for contributors and builders.

Security and Slashing

Validators who misbehave can incur economic penalties known as "slashing," which results in a portion of the SEI tokens staked to them being burned. For delegators, there is a three-week unbonding period when unstaking SEI, during which tokens are locked and do not earn rewards.

Locking Mechanism and Unlocking Schedule

The SEI token supply is subject to a long-term vesting schedule designed to ensure a gradual release of tokens into circulation, spanning approximately nine years from the mainnet launch in August 2023 until August 2031.

Vesting Details for Key Allocations

• Team Allocation (20%): Subject to a one-year cliff followed by five years of variable vesting.
• Ecosystem Reserve (48%): The remaining 73% of this allocation (after the initial 27% release) is subject to nine years of variable vesting.
• Foundation (9%): The remaining 78% of this allocation (after the initial 22% release) is subject to variable vesting over two years.

Upcoming Token Unlocks

The following table outlines the scheduled token unlock events for Sei Network in the near future, showing the amount of SEI entering circulation and its impact on the circulating supply:

The data indicates a consistent monthly unlock of approximately 113 million SEI through July 2027, representing a steady increase of 1.77% to the circulating supply each month. This pattern of predictable, long-term vesting is a key feature of Sei's token distribution strategy.