Catalyst · Tokenomics
Tokenomics
Every startup launched on Catalyst deploys its own ERC-20 token at registration time. The total supply and the distribution percentages are fixed by the protocol to keep the economics predictable across all startups. This page documents exactly where each token goes and how the fee economy works.
Token distribution
Token supply is split into five buckets at registration. The percentages are set by the protocol and the same for every startup:
| Bucket | Share | Purpose |
|---|---|---|
| Investor allocation | 40% | Distributed pro-rata to Pool 1 investors when the startup resolves |
| Pool 2 liquidity | 25% | Seeded into the USDx/TOKEN price discovery pool at cycle start |
| Founder allocation | 20% | Vested to the founder on Completed status |
| Buyback reserve | 10% | Held by the hook contract for auto-buybacks from Pool 1 fees |
| Protocol treasury | 5% | Distributed to the DeFiRe Labs treasury for protocol operations |
ℹ️Why these percentages
The 40% investor share is the single largest allocation, aligning the protocol with investor upside. The 25% in Pool 2 ensures meaningful liquidity and price discovery from day one. The 20% founder share is contingent on a successful outcome — it only vests if the evaluator says Completed. The 10% buyback reserve and the auto-buyback flywheel create constant buy pressure regardless of individual investor actions.
The fee economy
Pool 1 charges a fee on every swap (standard Uniswap v4 fee). Unlike a normal liquidity pool where all fees accrue to LPs, in Catalyst the fees flow through the CatalystHook and get split into three parts:
| Fee destination | Share | Effect |
|---|---|---|
| Founder (operational funds) | 70% | Withdrawable at will during the Active phase. This is the founder's ongoing runway. |
| Auto-buyback of TOKEN | 30% | Automatically used to buy the startup's token from Pool 2, creating constant buy pressure on the price. |
| LP yield | 0% | Investors do not earn LP fees — their return comes from the token allocation, not swap fees. |
The buyback flywheel
The 30% auto-buyback is the economic engine of a successful Catalyst startup. It works like this:
1. A swap happens on Pool 1 (USDx/USDy). Hook collects the fee in USDx.
2.70% of the USDx fee is credited to the founder's withdrawable balance.
3. 30% of the USDx fee is queued for auto-buyback.
4.The hook executes a swap on Pool 2 (USDx → TOKEN) with the queued USDx.
5. The received TOKEN is transferred to the buyback reserve, effectively burning it from circulation until cycle resolution.
6. Each buyback pushes the TOKEN price up on Pool 2.
7.Higher price attracts more Pool 1 volume (investors want exposure) → more fees → more buybacks. The flywheel spins.
⚠️The flywheel only works with real activity
Auto-buyback translates Pool 1 real volume into TOKEN buy pressure. If a founder tries to manufacture volume via wash trading on Pool 1, the adoption oracle will detect it and post DENY, overriding any artificial TOKEN price increase at cycle evaluation. The flywheel cannot be gamed end-to-end.
Worked example
Consider a startup with a funding target of $100,000 and a 90-day cycle. If Pool 1 averages $50,000 in daily volume at a 0.3% fee:
Daily fee collected: $50,000 × 0.003 = $150
Daily founder payout: $150 × 0.70 = $105
Daily auto-buyback: $150 × 0.30 = $45
Over 90 days:
Founder total: $9,450 operational runway
Total buyback: $4,050 of TOKEN purchased from Pool 2
Investor principal: $100,000 intact in Pool 1
Investor token share: 40% of supply, value TBD by Pool 2 price at evaluation
At cycle end, if the TOKEN price in Pool 2 is above the founder's minimum target AND the adoption oracle says APPROVE, the investor walks away with their $100,000 principal PLUS the appreciated token allocation. If either condition fails, the principal is still there and the collateral is claimable.