Change Of Fee Distribution
Creator
I have devoted over a week to this work. Most of my time during the past week was spent writing this document.
I do not claim that this is the only or best option. I am open to dialogue and constructive criticism. I am eager to publicize the issue and have already posted about it on Twitter. Please give some noice.
Thanks to everyone who contributed to this proposal. <3
If you don’t want to read the entire document, Here on this attachment for a summary.
Note: this short version was created with Grok3.
Contributors
Fannz
Durden
SolS
Why Shifting Fee Distribution is a Game-Changer
Let’s set the stage: Jupiter currently splits its transaction fees down the middle 50% goes to buybacks, where tokens are simply purchased to reduce supply, and 50% is reserved for future development. That development allocation? It’s a very good idea. It’s the lifeblood that keeps Jupiter growing, innovating, and staying ahead in the brutal world of DeFi. We’re not touching that it’s sacrosanct. But the 50% going to buybacks? That’s where we can do better. Much better. Instead of buying those tokens, let’s redirect that 50% to reward long-term stakers. Why? Because it delivers way more value to the people who actually matter the committed holders than buybacks ever could. Let’s break it down with math, logic, and a sprinkle of DeFi magic.
Buybacks vs. Fee Distribution
At the beginning we need to clarify something. If a token has no value on its own, a buyback won’t change that. Reducing the supply of something valuable makes it more valueable and, in turn, more valuable. This is why stock buybacks work. But reducing the supply of something without inherent value doesn’t create value; it simply means there’s less of it.
In traditional markets, buybacks enhance existing value, whereas in some crypto models, they’re seen as a way to establish value. However, price discovery doesn’t work the same way for all assets. And I’m not saying that Jupiter has no value, I mean that buybacks tokens does not create any value, whereas paying dividends does.
Picture this: Jupiter uses its buyback allocation to reduce the token supply by let’s say 7% over a year. In an ideal world, basic economics kicks in, supply drops, demand holds steady, and the token price rises by about 7%. If you’re holding $JUP, your bag’s value increases by 7%. Nice, right? It’s a passive win for everyone, staker or not. But here’s the kicker: redirecting that 50% fee pool directly to stakers instead of just buying tokens doesn’t just match that 7% it obliterates it, potentially boosting a staker’s position by as much as 35%. How is that possible? Let’s crunch the numbers.
Imagine Jupiter generates $10 million in fees annually (a round number for simplicity). Under the current system:
- $5 million (50%) goes to buybacks, and it shrinking supply by 7%.
- Your $JUP holdings appreciate by 7% in value. If you’ve got $10,000 worth of $JUP, that’s a $700 gain.
Now, let’s flip the script. Instead of buybacks, that $5 million is distributed to stakers. Here’s where it gets juicy:
- Suppose only 22% of $JUP tokens are staked (a realistic starting point based on current trends).
- That $5 million fee pool is split among the stakers, who collectively hold 22% of the supply.
- If you’re staking $10,000 worth of $JUP, and you’re one of that 22%, your share of the $5 million depends on your stake relative to the total staked amount.
Let’s assume there’s 1 billion $JUP in total supply, and 20% (200 million) staked. Your $10,000 stake might be, say, 10,000 $JUP (at $1 per token for simplicity). Your share of the staked pool is:
- 10,000 / 200,000,000 = 0.005% of the staked supply.
- Your cut of the $5 million fee pool = 0.005% * $5,000,000 = $2,500.
That’s $2,500 in rewards on a $10,000 position a 25% return just from fees, not counting any price appreciation from locked supply. If staking participation stays low (say, 20%), and fees grow as Jupiter scales, that return could easily hit 35% or more over time. Compare that to the 7% price bump from buybacks (the 7% buyback assumption is slightly overstated); it’s not even a contest. Stakers get a massive payday, while non-stakers get nothing. It’s a direct reward for loyalty. (I know the math wasn’t perfect but it illustrates the point.)
But wait, there’s more:
- Low Staking Rates Amplify Rewards: With only 22% staked, the fee pool is concentrated among fewer people. Your slice of the pie is huge.
- Rising Staking Rates Squeeze Supply: If staking jumps to 80% as people catch on, 80% of tokens get locked, decreasing the liquid supply and driving the price up further. Even if your per-token reward drops (since the $5 million is now split among more stakers), the price surge more than compensates.
In short, fee distribution to stakers delivers a direct, outsized return potentially 35% or higher compared to the indirect, modest 7% from buybacks. It’s a no-brainer for long-term holders.
Sub-Conclusion: Fee distribution outperforms buybacks, offering stakers up to 35% returns versus a mere 7% price boost. By directly rewarding loyalty and reducing the liquid circulating supply through staking, it drives higher returns and ecosystem stability, making it the superior choice for long-term growth.
The ASR Plan: Good Intentions, But why do it that way?
You mentioned the team’s plan to use those locked buyback tokens for Active Staking Rewards (ASR) after the initial token distribution runs dry in three years. It’s a noble idea repurpose the buybacks to keep stakers happy down the road. But here’s why it falls flat: it’s too little, too late. Stakers have to twiddle their thumbs for three years while the current buyback system keeps funneling value to non-stakers think exchanges who dont care even on $JUP or short-term traders who don’t care about the project’s future. Why delay the benefits when we can supercharge staking right now?
By shifting the 50% fee pool to stakers immediately:
- You reward loyalty from day one, not year three.
- You incentivize more people to stake early, locking up supply and boosting price sooner.
- You sidestep the middleman (buybacks) and put rewards straight into holders’ wallets.
The ASR delay makes no sense when the infrastructure for staking rewards already exists. Let’s strike while the iron’s hot and build a staking army now.
Making Staked Tokens Liquid (But Not Too Liquid)
Now, let’s tackle a big question: why aren’t locked tokens usually liquid, and how do we fix that without breaking the DAO? Normally, if you lock $JUP to stake, you can’t sell it until the lock period ends. That’s by design imagine someone buying a ton of $xJUP, voting on a critical DAO proposal, then dumping it all the next day. That’s a real risk; they could manipulate governance and crash the price, leaving the DAO in shambles.
But here’s the twist: what if we made locked $xJUP sort of liquid enough to help stakers in a pinch, but not so much that it becomes a speculator’s playground? Enter the JUP/xJUP model.
How It Works
- Lock Your $JUP: Stake your tokens for, say, 1 to 30 days. The longer you lock, the more fees you earn (we’ll get to that later).
- Get staked JUP: Your locked $JUP becomes staked $JUP, a non-tradable token that tracks your stake and lock duration.
- Swap for xJUP: At max lock (30 days), you can convert staked JUP to xJUP, a liquid version of your staked tokens. Think of xJUP as a tradable proxy for your locked $JUP, but it comes with a catch: it trades at a slight discount, due to arbitrage keeping it pegged below $JUP’s spot price.
Why bother with xJUP? Because life happens. Your car breaks down, a medical bill hits, or you just need cash fast. Without xJUP, you’d be stuck waiting out your lock period, maybe months, twiddling your thumbs. With xJUP, you can sell right away no fuss, rally people may not be afraid of long-term commitment and it supports the long-term development of the project…
Keeping It Safe: The Small Pool Trick
“But wait,” you say, “won’t whales just buy $xJUP, vote, swap to JUP, and dump, screwing the DAO?” Great question. Here’s why that won’t work: the JUP/xJUP liquidity pool will be deliberately tiny.
- Emergency Exits, Not Exit Scams: For the average staker, xJUP is a lifeline sell a little if you’re desperate, and the small pool handles it fine. But for a whale trying a “cheat the DAO” (big buy, vote, dump), the pool’s size chokes their exit. They’d lose so much to the discount that it’s not worth it. And you can set fee to the pool like 1% and suddenly it won’t be profitable.
- Limited Dumping Power: The pool’s small size means you can’t unload massive amounts of xJUP without tanking its price. Say someone tries to dump a huge bag of xJUP discount might balloon from to 40%. At that point, arbitrageurs swoop in, buy the cheap xJUP, unstake it over time (since it’s still tied to the original lock), and profit when it reverts to full $JUP value. The system self-corrects.
Optimizing xJUP Liquidity: The Sweet Spot
“So wait,” you ask, “doesn’t using xJUP for liquidity hurt stakers by reducing rewards?” Smart question. Here’s why it’s actually the opposite: JUP-xJUP trading fees introduce an entirely new yield stream that wasn’t there before. More fees mean more rewards for JUP stakers so long as everything else stays constant.
The real game? Finding the balance. Liquidity providers need to fine-tune their contributions to hit that perfect equilibrium where staking yields and LP yields align. Get it right, and everyone wins. Stakers get boosted rewards, LPs earn their cut, and the ecosystem thrives. Even those who never touch xJUP benefit, because a well-balanced system keeps everything stable, lucrative, and built to last.
So yes, xJUP makes locked tokens liquid confidently because the small pool and discount
Sub-Conclusion: The JUP/xJUP model ensures staked tokens are liquid yet stable. Stakers can convert locked tokens to tradable xJUP at a discount for emergency liquidity, while a small liquidity pool prevents whale manipulation, protecting the DAO.
Rewards: Long-Term Holders Only, DAO Decides the Details
Here’s the heart of it: transaction fees should go to long-term holders, not short-term speculators or passive exchanges. How do we make that happen? Simply tie rewards to staking and lock duration, and let the DAO fine-tune the rest.
The Reward Setup
- 30-Day Lock: Stake for a month, get voting power, ASR rights, and 50% of fees.
- No Stake, No Slice: Exchanges holding idle $JUP? Short-term traders flipping on Bybit? They get zero. Not a single crumb of the fee pool.
The amount you earn from fees would be calculated using this formula:
(your staked JUP / total staked JUP in circulation) * fees generated by Jupiter
The DAO gets to tweak the specifics, maybe extra bonuses for month lock, or a steeper reward curve for longer commitments. But the key point is non-negotiable: short-term speculators and exchanges don’t touch these funds. They’re for the hodlers, the builders, the believers.
Why It Works
- Incentives Aligned: Stakers, especially long-term ones, get the lion’s share, encouraging more people to lock up and stick around.
- Speculators Starved: Without fee rewards, there’s less reason to flip $JUP short-term. Exchanges sitting on unstaked bags? They’re just spectators now.
- Community Power: The DAO decides the nitty-gritty, ensuring the system evolves with the community’s needs not some top-down dictate.
Sub-conclusion: the proposed reward system prioritizes long-term holders by distributing transaction fees exclusively to those who stake their $JUP, with rewards scaling based on lock duration and voting power, as determined by the formula (your staked JUP / total staked JUP) * fees generated. The DAO retains flexibility to adjust details, such as bonus incentives, while firmly excluding short-term speculators and passive exchanges from the fee pool. This setup aligns incentives for sustained commitment, discourages fleeting speculation, and empowers the community to shape the system’s future.
Legal Considerations
Unfortunately, I don’t know anything about the legal side. But I do know is that many projects have this type of tokenomics and they function just fine so there should be no problem here. And it is an important topic to talk about.
Why This Beats the Status Quo Hands Down
Let’s recap why shifting the 50% buyback fees to stakers is a slam dunk:
- Massive Gains for Stakers: A potential 35% boost to your position (or more) crushes the 7% price bump from buybacks. It’s direct, tangible value not just theoretical appreciation.
- Punishes Speculators: No stake, no rewards. Exchanges and flippers get left in the dust.
- Locks Up Supply: With linear unstaking and juicy rewards, staking rates could soar to 80%, slashing circulating supply and turbocharging price.
- Development Stays Funded**:** The other 50% of fees keeps Jupiter’s innovation engine humming. No compromise there.
The tokenomics of a 30-day max staking period with linear unstaking and regular payouts strike the perfect balance between flexibility and commitment. It’s a system built for long-term holders, not short-term profiteers.
Wrapping It Up: A Win for Holders, a Snub to Flippers
This isn’t just a minor tweak, it’s a revolution for Jupiter. Long-term holders gain a ton: fat fees, a supply crunch that boosts price, and liquid xJUP to sell in a pinch (but not too much). Staking could jump from 22% to 80%, slashing circulating supply and supercharging the DAO’s health. Meanwhile, short-term speculators and exchanges get shut out with no fees or rewards, just the crumbs of price action driven by the stakers they ignored.
Risks**?** Sure liquidity could tighten too much, or xJUP trading might need babysitting. But with a small pool and smart design, those are manageable. The DAO can hash out the details, test it, and make it bulletproof.
So, what do you think? Ready to lock your $JUP and reap the rewards, or do you see holes to plug? This is your game to shape. Let’s make it epic.
I’ll throw in a link of the Twitter post in the comments.
