SKL is the utility token of the SKALE Network, providing economic security for the Proof-of-Stake network on Ethereum and enabling governance participation. As SKALE continues to mature and network usage evolves, it is appropriate to more directly align token demand and supply with real economic activity.
This SIP proposes a framework to enhance SKALE’s economic value capture through expansion fees and the introduction of SKL burning mechanisms tied to application and user activity, while preserving SKALE’s core value propositions and positioning SKALE Expand for long-term success.
Background
The SKALE Network began as a single pool of validator nodes capable of supporting many SKALE blockchains, all coordinated through the SKALE Manager on Ethereum.
With the recent introduction of the SKALE Expand experiment through the first deployment on Base, the network has seen significant interest and a number of new opportunities. In response, the community has proposed several ideas that are consolidated in this proposal, with the goal of ensuring that SKALE continues to deliver value back to the core network as it grows.
SKALE Expand was an experimental initiative proposed by SKALE Labs CEO and Co-Founder Jack O’Holleran in late October. The goal of SKALE Expand is to bring SKALE’s technical innovations and unique value propositions to other EVM-compatible chains without sacrificing token value capture. This approach enables SKALE to expand its reach while maintaining strong economic alignment with the SKALE Network.
Through iterative discussion, the community has made the following principles clear for a successful SKALE Expand implementation:
SKALE Expand should economically align with the goals of the SKALE Network and the SKALE DAO
Parameters for individual SKALE Expand deployments should be managed independently, allowing each instance flexibility to experiment and grow within its local ecosystem
Burning mechanisms should be introduced that scale with increasing demand for blockspace and SKALE Expand deployments
SKALE Expand deployments are encouraged to explore the addition of Proof-of-Stake using SKL once established, at which point this proposal directly strengthens all deployments with active SKL staking
Proposal
This SIP proposes the following framework:
Each instance of SKALE Expand, technically defined as a new deployment of SKALE Manager other than original SKALE Manager deployment on Ethereum, will be operated independently from the SKALE DAO
Each SKALE Expand instance will share 50% of its individualized aggregate revenue with the SKALE Network; this contribution will either:
be burned directly if denominated in SKL, or
be used to purchase SKL, which is then burned
Existing SKALE Ethereum economics and protocol design remain unchanged
Technical Specifics
Aggregate revenue is defined as all sources of revenue related to the sale of blockspace or SKALE-chain-related compute and technology, including but not limited to:
SKALE Chain subscriptions
sChain gas fees
The sale of compute credits
Any deployment of SKALE Manager outside of the original Ethereum deployment is considered a SKALE Expand deployment and must adhere to SIP-4
Burning is defined as the sending of SKL tokens to the 0x0000000000000000000000000000000000000000 address on Ethereum Mainnet
This proposal represents the aggregation of feedback shared publicly and allows the ecosystem to take a measured step toward aligning SKALE’s economic capture with how the ecosystem is evolving today. By tying SKL demand and burning directly to revenue growth, SKALE can strengthen its economic foundation while bringing a more robust set of products to the market.
Thank you to everyone who contributed feedback to this proposal!
SIP-4 represents a major inflection point for SKALE’s economic model.
As SKALE Expand moves from experiment to real-world deployment—starting with Base and likely extending to other ecosystems—this proposal provides the missing revenue and value-capture layer needed for a truly sustainable network. By directly linking expansion-driven revenue to SKL buy-and-burn mechanics, SKALE can translate increased usage and adoption into tangible economic value for the core network.
This framework feels like a natural and well-timed evolution of SKALE Expand as it exists today: expansion without dilution, growth without losing alignment. The 50% revenue share ensures that success outside Ethereum still strengthens SKALE itself, while preserving flexibility for each deployment to grow within its local ecosystem.
Aligning the economic model with usage of SKALE Expand makes a ton of sense! I am 100% in favor of this burn mechanism to increase value capture and better align incentives between SKL holders, validators, and network participants.
As mentioned in my latest proposal this update is crucial to SKALE’s economics model. Thus, I’m fully aligned with this SIP. Let’s get it out for vote ASAP.
To add a little bit of a different prospective here to assist managing expectations. Supply reductions only do one thing which is reallocate value back to asset holders. Demand needs to be increased or at a minimum stay flat for supply reductions to have any noticeable increase on asset value. Unfortunately, and I really mean unfortunately, the demand for SKL has been on a sharp decline over the last 5 years. For a supply reduction @ current SKL supply, and demand, have any noticeable effect to the value, reductions of approximately 200,000,000 would need to occur annually for the next 6 years. Or some type of escalating reduction that cuts supply by half over the next five years. Marketing around the supply reductions can however increase demand and augment these amounts.
Thanks - great feedback and fully agree, SKL demand needs to increase simultaneously. SKALE Expand is aiming to help with that. You can learn more about it in my previous forum post “Rethinking SKALE’s Revenue Model for the Next Era of Growth”.
To say the quiet part out loud, the supply that will be burned by the current proposal seems to be a nothing burger even with a moderate demand increase. Has anyone estimated what these amounts will be? Better than nothing, I guess.
You are bashing this proposal before it even goes to a vote, let alone is implemented. How did you come up with “200 million per year for the next six years”? Because it’s 3% of the supply? That’s a reasonable burning % per year, but on the very next statement, you mention cutting supply by half (3 billion) over the next five years; how did 200 million per year become 600 million per year?
Burning (reducing supply) and people’s interest in buying/investing in the skale token (“demand” as you call it) could feed of each other and create a snowball effect, thus increasing the demand exponentially, not linearly o remaining flat as you imply.
Skale expand has only launched on Base, but will be launching on other ecosystems, so not only will the burning mechanism keep growing to other spaces, but the burning transactions on each of these ecosystems could also grow exponentially (and don’t forget that running nodes on Fair once it launches will also require the burning of skale tokens).
I see this as a very good first step that could potentially be the push that sends the snowball downhill, not a “better than nothing” action from the team.
The burning amounts I suggested are inline with what has worked for other projects. I’m not bashing, not being negative. I’m saying 3% annually with growing demand, more drastic if demand stays in decline. Look, not trying to argue. I am generally trying to understand if the proposals have taken into account the cause and effect of the proposed reductions. Has anybody estimated what the amounts will be. Has anyone determined what is needed for desired outcome?
I’m just missing the other side of it. These reductions are planned not just for the fun of it. They’re being proposed to achieve a certain outcome and I’m trying to understand what that outcome is.
For example BNB burned over 30% of its supply to date to have a positive effect while demand was growing. I believe they will reduce the total supply by half before complete. Probably a decent example of a successful reduction plan.
It’s great to see the new proposal to protect its price and keep the economy.
There’s one question - where the rest of 50% is going? Is it included with validator distribution?
Confirming the other 50% would be distributed to node operators on that expand deployment in the short term. This seemed like the simplest path forward in the short term since the new expand networks do not have any of the SKL inflation.
From my current understanding it should be possible in the future to enable staking on an expand deployment pending a few technical items to be completed at which point that % would most likely have a piece carved out for delegator bounties.