Intro to Sui

The Sui economy has three main sets of participants: 

• users who submit transactions to the platform to create, change, or transfer digital assets or interact with applications built on Sui
• SUI token holders who either stake their funds to validators in order to secure the network and participate in governance or use them to pay fees to interact with assets and applications on the chain
• validators who manage transaction processing and execution

These participants interact with each other in a variety of ways across the network and that interplay informs the three core components of Sui’s tokenomics: 

• Sui’s Proof-of-Stake Mechanism ensures the incentives of SUI token holders are in line with Sui’s validators
• Sui’s Gas Mechanism ensures the network charges low and stable gas fees to users no matter how much demand there is for activity on the network
• Sui’s Storage Fund ensures data storage is priced accurately so data stored today doesn’t burden future users of the network

And the glue that holds the whole system together is the SUI token, Sui’s native asset.

SUI tokens serve four purposes on the network:

• They can be staked to a validator in order to secure the network and earn stake rewards. 
• They can be used to pay gas fees to execute transactions and other operations. 
• They act as the native asset to facilitate on-chain transactions underpinning the whole Sui economy.
• They give holders the right to participate in future governance. 

The total supply of SUI is capped at 10 billion tokens.

Within each epoch, a fixed set of validators are responsible for operating the network. This set is chosen based on the amount of SUI tokens staked to the validator. With Delegated Proof-of-Stake (DPoS), Sui allows for the broadest possible participation of token holders in network operations. Importantly, by using staked SUI token amounts as a proxy for voting power, the right degree of “skin in the game” is established—those who care most about the network’s future get a larger voice in its current operations.

Most SUI token holders will not have the funds, ability, or desire to run a validator but want to participate in securing the network. To do so, they “back” a validator they believe to be a good actor by delegating their tokens to that validator’s stake. These delegated tokens help the validator reach the minimum amount needed to be part of the active set of validators for the epoch. The tokens are locked for the epoch, meaning they can’t be transferred or sold. 

In exchange for operating and securing the network, the validator receives staking rewards in the form of SUI tokens. The rewards are distributed to all token holders who delegated to that validator’s stake, minus a small commission fee paid to the manager of the validator.

Sui’s gas pricing mechanism achieves several important outcomes: 

• delivering users with low, predictable transaction fees
• incentivizing validators to optimize their transaction processing operations; 
• preventing spam and denial of service attacks.

Sui can deliver predictable transaction fees because validators agree via survey on a network-wide reference price at the start of each epoch. Validators each state the minimum price they would be willing to take to process a transaction. These prices are ordered by the protocol and a reference price is selected at which a quorum of validators necessary to run the network are willing to promptly process transactions. 

Validators are incentivized to propose credible prices since the network uses the Tallying Rule to determine which validators are processing transactions at the current gas price. Validators evaluate one another’s performance during the epoch, establishing a multiplier for the stake rewards of other validators. If a validator is slow or non-performant, then the Tallying Rule can be used to slash that validator’s rewards. The Tallying Rule’s thus creates a community-enforced mechanism for encouraging validators to honor the reference gas price.

Unlike gas fees, storage fees are set through governance proposals to stay on par with the cost of off-chain data storage. As the costs of off-chain storage declines over time, governance proposals will update Sui’s on-chain storage fees to reflect the new target price.

A blockchain network is not static. The validators who write transactions to the chain today may not be the same as those who will store the data in the future. Because the amount of data grows over time, if users only paid the fees needed at the time of a transaction, future users would pay disproportionately high fees, discouraging use of the network.

To solve this problem, Sui’s Storage Fund redistributes past transaction fees to future validators. Users pay upfront for processing and storage and the storage fees are deposited in the Storage Fund. These funds are considered when distributing stake rewards and are used to adjust the share of rewards distributed to validators. If storage requirements are high, validators receive additional stake rewards to cover additional costs, and vice versa when requirements are low. This ensures that validators are adequately compensated for their costs of holding data in storage.

Sui’s storage model also has a “delete option” by which users can obtain a storage fee rebate when they delete previously stored on-chain data. It is expected that users will delete data whenever storage no longer makes financial sense, preventing unending growth of storage needs. Sui thus offers the best of both worlds: the ability for users to store on-chain data while incorporating a market mechanism ensuring that only data that is worth storing is actually kept on Sui.