# $EGY Tokenomics ## Incentives and Emissions ETH Strategy incentivizes early participants with emissions — but not through the inflationary governance token model that dilutes holders. Instead, $EGY uses a different approach: **out-of-the-money (OTM) options as incentives**. ## OTM Options as Incentives $EGY holders control a treasury of OTM STRAT options that are minted alongside convertible note issuance. This issuance point is deliberate — STRAT holders gain value when bonding occurs (the treasury grows), so incentive emissions are tied to the same event that creates protocol value. Upon bonding, a percentage of the nominal value of the options bonded is deposited into the $EGY vault. The exact percentage will be set after core protocol launch based on observed bonding dynamics and market conditions. ## How the OTM Options Work * OTM STRAT options have **\~4.2-year tenors** and strike prices set **above the current STRAT price** * These options hold **no intrinsic value** until STRAT trades above their respective strike prices * OTM options are **not convertible notes** — they are issued without any CDT. They represent pure upside optionality ### How STRAT Options Are Denominated STRAT options have strike prices denominated in CDT: * If an option has a strike of 0.4 CDT, STRAT must trade above 0.4 CDT to be in-the-money * Since CDT represents \~$1 of debt, the effective USD strike depends on CDT's market price * If CDT trades at $1.00, the strike is effectively $0.40. If CDT trades at $0.70, the effective strike is $0.28 This denomination ties option value to the protocol's debt dynamics, not just the spot price of STRAT. ## Why This Structure Matters To exercise an OTM option, the holder must first **acquire CDT**. This mechanism ensures that the protocol's treasury benefits directly: * **Buy CDT on the market and burn it on exercise** — reducing total protocol debt, which improves the treasury-to-debt ratio for all STRAT holders * **Bond more ETH to acquire CDT** — feeding the treasury growth flywheel by adding fresh capital Either path reinforces the protocol's economic engine. Incentive emissions don't leak value — they channel it back through the protocol's core mechanics. {% hint style="info" %} **Parameters pending.** The incentive structure, including the exact percentage of options directed to the $EGY vault, is subject to finalization after core protocol launch. The mechanism is designed, but specific numbers will be set based on observed bonding dynamics and market conditions. Follow [@eth\_strategy](https://twitter.com/eth_strategy) for updates. {% endhint %} ## Risks If STRAT never trades above the OTM strike prices during the option tenor, the options expire worthless. $EGY holders should understand that these are out-of-the-money instruments — they have value only if the protocol succeeds in growing STRAT's price above the strike. This is by design: incentives are aligned with protocol success, not guaranteed regardless of outcome. ## Further Reading * [Convertible Notes](/core-mechanics/convertible-notes.md) — how bonding works and how options are created * [CDT](/core-mechanics/cdt.md) — the debt token required to exercise options * [STRAT Economics](/tokenomics/strat-economics.md) — the revenue model that drives STRAT price growth --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.ethstrat.xyz/tokenomics/usdegy-tokenomics.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.