Economic Mechanics

overview the tokenflow protocol is powered by a closed loop economic model that converts all activity — deposits, withdrawals, and trades — into value accretive events for both investors and the ecosystems of the indexed tokens at its core, the design ensures that capital inflow (eth deposits) directly fuels purchases of underlying assets capital outflow (redemptions) returns eth proportionally without destabilizing liquidity trading activity continuously strengthens the fund through automatic buybacks and burns this transforms tokenflow from a static fund model into a self sustaining flywheel , where every participant — investor, trader, and token community — contributes to long term growth core economic loop tokenflow’s economy consists of three simultaneous value flows flow type trigger effect stakeholders benefiting deposit flow user deposits eth buys index constituents, mints fundshares investor, constituent token communities redemption flow user redeems fundshares sells assets, returns eth investor (liquidity) trading flow fundshares traded on dexs generates buyback & burn through tax all fundshare holders + token communities these three loops interact to form a perpetual reinforcement system more deposits → bigger fund → more trading → more burns → higher backing → more demand → more deposits this is tokenflow’s “etf flywheel ” the fee ecosystem each tokenflow vault has multiple revenue and redistribution channels, designed to align incentives and fund sustainable growth a minting fee (deposit fee) charged when users deposit eth and mint new fundshares typical range 0 2–0 5% (configurable per vault) fee destination vault’s fee pool (held in eth) purpose covers swap costs, gas, and treasury funding b redemption fee (withdrawal fee) charged when users redeem fundshares for eth typical range 0 2–0 5% (configurable per vault) fee destination vault’s fee pool purpose discourages short term churn and protects liquidity c dex transaction fee (trading tax) applied automatically when fundshares are traded on uniswap or other dexs example 1% transaction tax per trade distribution 80% → auto buyback and burn (deflationary loop) 20% → treasury allocation purpose transforms secondary market activity into fund growth the deflationary buyback mechanism the deflationary buyback mechanism the the deflationary loop is tokenflow’s most innovative feature it ensures that every trade of an index token contributes to both increasing the backing of the fund increasing the backing of the fund , and reducing its total token supply reducing its total token supply process process fundshare is traded on uniswap fundshare is traded on uniswap smart contract applies a transaction tax (e g , 5%) smart contract applies a transaction tax (e g , 5%) 80% of the collected tax is automatically d 80% of the collected tax is automatically d eposited to the corresponding vault in exchange for newly minted fundshares the received fundshares are sent to the the received fundshares are sent to the burn address (0xdead) and permanently destroyed this reduces circulating supply and indirectly increases each remaining token’s share of the underlying basket this reduces circulating supply and indirectly increases each remaining token’s share of the underlying basket each burn event reduces supply and increases the each burn event reduces supply and increases the nav per share and backing ratio nav and market price dynamics the fundshare token can trade at a premium or discount to its nav (net asset value), similar to etfs premium (price > nav) arbitrageurs mint new shares (deposit eth) and sell on uniswap, capturing the spread — which increases fund size and realigns price discount (price < nav) arbitrageurs buy cheap fundshares from dexs and redeem them for eth at nav — removing supply and lifting the market price this constant mint redeem arbitrage keeps fundshare prices anchored to the true underlying value, maintaining liquidity and fairness buy pressure for constituent tokens every tokenflow vault holds a basket of underlying assets (e g , memecoins) whenever users deposit eth fundshares are traded (triggering the fee loop), or vaults rebalance to restore weights …the protocol buys these underlying tokens on chain that means deposits create direct buy pressure for constituents trading creates secondary buy pressure via fee recycling rebalances reallocate liquidity among the ecosystem tokens for token communities, inclusion in a tokenflow index is not just exposure — it’s sustained organic demand the treasury & fee routing each vault maintains a small eth denominated fee pool , which accumulates deposit fees redemption fees 20% of dex tax allocations optional management fees funds in this pool can be used by vault governance for liquidity seeding (uniswap lp provisioning) operational maintenance and audits marketing and community incentives emergency insurance reserves all flows are on chain and visible in the feecollector contract, ensuring full transparency example — memecoin index fund economics token $flowmeme underlying assets pepe (40%), spx6900 (30%), shiba (30%) initial composition 10,000 eth tvl 3,000 pepe, 2,000 spx6900, 1,000 shiba fees 0 3% deposit, 0 3% redemption, 1% trading tax scenario (simplified) daily trading volume on uniswap = 2,000 eth tax = 1% = 20 eth total 80% (16 eth) → buyback fundshares fundshare price = 0 01 eth → 1,600 fundshares are burned daily → over 30 days, supply shrinks by 48,000 tokens ( 1 5% of total) this continuous deflation rewards long term holders and drives constant memecoin purchases — compounding both scarcity and ecosystem growth rebalancing and weight drift rebalancing and weight drift each vault defines target asset weights ( w i ) over time, market movements create each vault defines target asset weights ( w i ) over time, market movements create weight drift ( \delta w i = w i^{actual} w i^{target} ) to maintain stability the the rebalancer module periodically adjusts positions rebalances are executed through rebalances are executed through twap orders to avoid slippage thresholds thresholds rebalance triggers when drift exceeds 5–10% rebalancing costs are covered by vault fees rebalancing costs are covered by vault fees all rebalances are logged via the rebalanced event, enabling transparent tracking of portfolio changes all rebalances are logged via the rebalanced event, enabling transparent tracking of portfolio changes economic safety mechanisms fee caps deposit/redeem fees cannot exceed 5% circuit breakers if liquidity or oracle data becomes unstable, vaults can pause mint/redeem temporarily impact guards prevents execution of swaps that would exceed a pre set price impact threshold (default 5%) drift caps vaults cannot hold >2× target weight of any single asset these constraints keep the system economically fair, manipulation resistant, and liquid sustainability model unlike yield farming protocols that inflate supply, tokenflow grows organically through volume and user activity revenue drivers mint/redemption fees → treasury dex tax → deflationary buybacks + treasury inflow management fee (optional) → operational budget value drivers burns reduce supply buybacks increase underlying tvl new users and integrations expand liquidity this combination of organic revenue and mechanical scarcity ensures the protocol is self sustaining without inflationary incentives the tokenflow flywheel (summary diagram) diagram description “deflationary value loop” \[dex trade] → apply trading tax (1%) → 80% to auto buy fundshares → buy underlying tokens in vault → burn fundshares → 20% to treasury (liquidity & ops) result ↓ supply + ↑ backing + ↑ demand the system rewards everyone traders get liquid markets holders gain from supply contraction token communities receive constant buy pressure vault governance collects sustainable fees summary table — economic parameters parameter default range description deposit fee 0 3% 0–5% fee on eth deposits redemption fee 0 3% 0–5% fee on withdrawals trading tax 1% 0 1–3% applied to uniswap trades buyback allocation 80% fixed portion of trading tax used for burns treasury allocation 20% configurable remaining tax allocation rebalance drift ±5% 3–10% triggers portfolio reweighting oracle freshness 2 hours — max time before price data invalid price impact cap 5% — max slippage per trade closing summary tokenflow’s economic model combines the predictability of index funds with the reflexivity of defi every transaction fuels the ecosystem trading volume converts into asset accumulation and scarcity holders, traders, and communities all benefit symbiotically by making liquidity productive and self reinforcing, tokenflow redefines how decentralized finance grows — not by minting more tokens, but by doing more with the ones that exist