Introducing xSILO: Tokenomics Upgrade on Sonic

Proposal Discussion
1

xSILO

Overview
xSILO introduces a tokenomics upgrade that enables $SILO holders to stake their tokens as xSILO, vote on $SILO gauge emissions, and earn voting rewards. This upgrade will roll out on Sonic, requiring users to bridge their tokens to Sonic, as detailed later in the “Minting a New $SILO Token” section.

The system is built around four core components:

  • Staking
  • Gauges
  • $SILO Emissions
  • xSILO Rewards

$SILO emissions are distributed to users based on specific actions in whitelisted markets. Meanwhile, voters receive xSILO rewards proportional to their gauge’s share of total protocol fees (revenue), fostering alignment among stakers, users, and the SiloDAO.

Staking

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Users can stake $SILO to receive xSILO, a non-transferable governance token. Once staked, xSILO holders gain voting rights in the Silo Gauge System.

xSILO can be redeemed for $SILO after a 6-month lockup period, or unstaked earlier with an early redemption fee. This fee starts at 50% for immediate withdrawals and decreases linearly to 0% by the 6-month mark, incentivizing long-term commitment.

Any $SILO forfeited through early redemptions is redistributed to remaining xSILO holders.

Delegation

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xSILO holders can delegate their voting power to other addresses, such as Silo Core, with all associated rewards passed back to the delegators. This setup suits passive token holders or users seeking a yield-generating $SILO position without the need for active involvement.

Gauges

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Every market on Silo can be whitelisted for a gauge, enabling xSILO holders to vote on four actions:

  • Deposit Token A
  • Borrow Token A
  • Deposit Token B
  • Borrow Token B

Gauge weights dictate each action’s share of $SILO rewards for a given epoch. To avoid over-allocation, each gauge is capped at 20% of total emissions.

$SILO Emissions

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Each epoch offers a fixed pool of $SILO rewards, allocated according to an action’s portion of the total gauge weight.

For instance, if Silo ID 1 holds 10% of the total gauge weight, users in that silo split up to 10% of that epoch’s $SILO emissions. The exact distribution hinges on the gauge’s cap and the specific actions incentivized.

Rewards stream linearly throughout the epoch as liquid $SILO and can be claimed at any time.

xSILO Rewards

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Each epoch provides a fixed amount of xSILO rewards, distributed to voters based on their gauge’s share of total epoch fees.

For example, if Silo ID 2 generates 20% of the epoch’s total fees, voters for Silo ID 2 will split 20% of that epoch’s xSILO rewards. No differentiation is made between Token A vs. Token B or Lending vs. Borrowing—xSILO votes are weighted equally at the Silo level.

Rewards are issued at the epoch’s end as xSILO, enabling stakers to compound their holdings and voting influence. Additionally, $SILO forfeited by early unstakers is shared among remaining xSILO holders, rewarding sustained participation.

Minting a New $SILO Token

Starting in early April, $SILO holders will be prompted to exchange their existing $SILO tokens for a new $SILO token on Ethereum mainnet. The newly-minted $SILO token will include the following features:

  • Cross-chain compatibility: Powered by Chainlink CCIP, the new $SILO will support transfers from mainnet to Layer 2s and sidechains, as well as between L2s and sidechains.
  • Staking: The new $SILO can be staked as xSILO on Sonic.
  • Voting: Holders can vote on emissions for cross-chain gauges.
  • Rewards: By staking $SILO as xSILO and either delegating or voting with it, holders earn voting rewards.
1 Like
4

gm,

thanks for sharing the concept about the upgraded tokenomics.

I would like to discuss a few ideas:

1.) Change the fixed lockup period to variable lockup tiers

Instead of a fixed 6 months lockup period, variable lockup tiers would make it more flexible & interesting for token holders:

  • Implement multiple lock-up tiers (e.g., 1, 3, 6, 9, 12 months) with increasing voting power multipliers
  • This would provide more flexibility while still incentivizing long-term holding

In addition:

  • Allow users to extend their lock-up period for additional benefits
  • Similar to Curve’s vote-escrow model for compounding influence

2.) Gamify Delegation and Voting

To prevent “set and forget” voting and to encourage active governance, it would make sense to implement a requirement for voters to reconfirm votes periodically and/or gamify governance participation by introducing additional rewards for active voters or delegators.

3.) Introduce a Buyback-and-Burn Mechanism

While staking reduces circulating supply temporarily, there’s no mechanism to permanently reduce supply and create deflationary pressure. Allocate a portion of protocol fees (e.g., 10%) to buy back $SILO tokens from the open market and burn them or build protocol-owned liquidity pairs.

What’s your thoughts?

br Mike

5

Just an idea, would it be possible to abstract a Vault layer within the current architecture, allowing each lending market to share liquidity? Then, xSilo could be staked to the Vault liquidity allocator, enabling xSilo stakers to capture not only Gauge Fees but also Performance Fees generated by the Vault.