Introduction

In Part 1: On DEXs, we examined how current decentralized exchange models fail to balance the needs and interests of liquidity providers, traders, and tokenholders—the so‑called DEX Trilemma.

In Part 2: On the Token, we introduced the MetaDEX approach of “token primacy,” explaining why an intelligently designed token can unify these stakeholders.

In Part 3: On Issuance, we saw how emission‑driven token distribution (dilution) helps bootstrap and retain users but must be thoughtfully structured to avoid purely inflationary pitfalls.

Now in Part 4, we introduce emissions in the MetaDEX model and tackle an often-asked question: How can emissions exceed near‑term fee revenue indefinitely while supporting a DEX’s growth?

TL;DR

• Emissions deepen liquidity → higher volume → more fees than competition

• 100% fee distribution + governance → lockers capture future productive growth → LPs receive maximum value generated by the DEX

• Emissions cushion yields in downturns by giving an option on future fees → durable liquidity

• Emissions used to compensate LPs are not short-term incentives that can be exhausted; a perpetual premium above revenue can sustain and even amplify long-term growth

1. Economic foundations of DEX value distribution

Liquidity, volume, and the value flywheel

All DEXs share a core goal: maximizing trading volume by offering superior trade execution. LPs supply tokens that traders demand in return for earning a share of fees traders pay to swap tokens. As volume grows, the DEX captures more value, which can be reinvested to improve liquidity and user experience. 

This cyclical process can compound over time:

1. LPs commit capital to facilitate trades.

2. Traders pay fees and benefit from better trade execution.

3. Protocol captures & distributes the generated fees.

4. LPs reinvest their gains, attracting more LPs and volume.

The sustainability of this process hinges on the DEX’s ability to retain LPs, who form the backbone of value creation. 

Fee-based DEXs and the competitive market structure

DEXs such as Uniswap that compensate LPs solely through fees face constraints because of their inability to give today’s LPs a stake in tomorrow’s trading fees. As a result, in low‑volume or nascent markets, low fees discourage LP participation. In bearish conditions, LPs exit rapidly, sparking a cascade of capital flight.

This dynamic also creates winner-takes-most outcomes. As multiple liquidity pools support trading for the same tokens, those with greater liquidity can offer lower slippage, allowing them to win a higher share of trading volume. Higher volume results in more fees for LPs, which attracts more liquidity as LPs from lagging pools shift their capital to the winning pools to capture the higher yield offered, thereby reducing lower-volume pools’ capacity to capture more volume.

Consequently, the primary objective of a DEX is market share; it survives by consistently attracting the majority of liquidity away from competing DEXs. And because competing DEXs can trivially (if not necessarily sustainably) offer short‑term incentives to outpay and draw liquidity away from others, a DEX must offer more than just fees to retain LPs in a sustainable manner. 

Tokens mobilize a DEX's productivity to retain LPs

Absent short-term incentives (i.e., external subsidies), the best available means of retaining liquidity is for a DEX to compensate LPs with the DEX’s productive value—not just today’s trading fees, but also a claim on future trading fees. This claim can be encoded into a token. A token that provides an option to participate in a DEX’s future cash flows can be called a “capitalized” stake in the protocol, allowing LPs to capture upside as the DEX scales, lists new pools, and generates additional sources of fees. In this way, today’s fees are transformed into a token that can provide present and/or future value, thereby vastly outcompeting DEXs that only offer LPs the trading fees currently being generated by the DEX. Trading fees passed directly to LPs without the ability to harness the protocol’s total productive value fail to incentivize liquidity retention and as a result are wasted. 

Incentivizing contributors with a stake in the protocol’s growth is not a novel concept in finance or even in everyday life. Consider Community‑Supported Agriculture (CSA) memberships, which often allow participants to purchase or work for fractional “shares” of a farm’s output, earning both produce and, potentially, a portion of revenue from surplus sales.

By actively working on the farm, CSA members not only receive goods but also gain rights to an ongoing revenue stream that can exceed their wage value if market demand grows over time. This structure adds to members’ compensation some upside potential, rather than offering a fixed paycheck tied only to the present value of their work. Here, members retrieve the full economic value of their contributions, not just a market wage.

2. Why does a DEX token need 100% value distribution?

Solving the DEX trilemma

Part of the DEX Trilemma is balancing the needs of traders (who want low slippage), LPs (who want high yields), and tokenholders (who want utility and full economic value for their contributions to the DEX). Some protocols, such as Curve, split fees between contributors and LPs—an improvement on solely passing fees to LPs, but not one that fully aligns all stakeholders because it fails to imbue the token with the protocol’s full productive capacity. In some cases, partial fee share can even leave LPs worse off than if they had just received fees.

In contrast, the MetaDEX distributes 100% of fees to token holders who elect to participate in the ecosystem by locking their tokens. This approach:

• Maximizes the value of payments by granting option value of both current and future fees.

• Grants liquidity providers not just access to fees generated by traders but other value streams generated by the DEX.

• Is, as a result, the only dominant strategy in a competitive environment.

Total fee distribution is the winning strategy

A DEX token that gives holders the option to share in the entire ecosystem’s output (rather than merely a share of trading fees) is more efficient than any partial fee distribution because it has incorporated the entirety of the protocol’s productive capacity. And assuming that the DEX generates more value in the future, tokens participating in its lifetime value will be worth more than fees captured over a single period—particularly when there are separate revenue streams also captured by the token. This increased efficiency, which incentivizes sustained LP participation, when combined with the winner-take-most nature of DEXs, explains why the MetaDEX is the only durable solution.

Why 100% fee distribution is the optimal solution is straightforward:

Full fee distribution maximizes the token’s capitalizable fee base because 100% of the fee stream is directed to participants using the token to contribute to the protocol.

All emissions to LPs then become more useful minted tokens (based on the fee base).

Result: Both groups (LPs and token lockers) end up with higher payoffs than in partial‑fee scenarios. Offering anything less than 100% of fees leaves LPs worse off and the protocol vulnerable to losing LPs to other DEXs.

In fact, we see that across different levels of dilution, LPs are best off getting either all fees or all emissions, owing to the complete distribution of fees to token voters. No intermediate amount works better.

Total distribution happens elsewhere: in network tokens

The MetaDEX’s full fee distribution and emission model follows a long‑established tradition of L1s tying a token’s utility directly to its generated value. Just as Ethereum or Solana treat their native assets as claims on all network production, the MetaDEX token has a claim to the 100% of the protocol’s revenue and as such can't be understood as an external incentive.

However, this kind of distribution is novel among large DeFi protocols. Among the top earning protocols across crypto, MetaDEXs have peers only in the L1s in directing all generated value to the token. Most DeFi opts for at best partial revenue distribution or full control of a DAO treasury, limiting tokens' functional value in their systems.

3. Emissions with the MetaDEX

Why emissions?

From Part 3, we know tokens are best distributed (or “diluted”) via emissions—a mechanism that rewards contributors at the time of their participation. Rather than selling tokens to early investors or handing them out in large, pre‑minted chunks, the MetaDEX emits new tokens as an ongoing incentive for LPs and lockers. This ensures:

1. Sustainable Compensation: Unlimited emissions on a schedule prevents concerns about running out of allocated tokens and requiring a cumbersome redistribution of tokens later on.

2. Optimal realignment of control: The more a DEX thrives—via higher volume and liquidity—the more emission rewards go to those fueling that growth.

Emissions are not “free money”

No matter how it's done, a grant of a proportional stake in something is in effect a transfer of ownership from some parties to other parties. Just like reassigning shares by taking from one holder's allocation and giving it to another, emissions bring about a re-carving of the same pie: new tokens come into circulation, reducing the relative share of anyone not receiving these tokens. Emissions in this system are not some outside incentive that stands to run out; you can always reallocate without changing the substance of the pie.

In a conventional business, you might see insiders or early investors being protected from dilution. Here, the concept is inverted: currently contributing LPs and lockers are the ones gaining newly issued tokens, steadily increasing their share of the protocol relative to those who are not participating. Your stake depends on your continued contribution.

This keeps maximum value in the hands of those who drive volume and add liquidity, forming the cornerstone of what we call constructive dilution—dilution that maximally facilitates growth.

4. Constructive dilution: who is diluting whom?

Active vs. Passive participants

Because emissions favor those who provide capital or otherwise contribute to the ecosystem, inactive tokenholders inevitably see their proportion decline if they fail to participate. Over time, the protocol’s decision-making center and fee distribution shift toward active stakeholders who are both fueling and benefiting from the MetaDEX’s growth; in this way, incentives are matched to efforts, a longstanding target in organizational design.

LPs are the primary service provider and the primary beneficiary of issuance

Liquidity provision is the DEX’s primary source of real value creation—without liquidity, no trades can happen. And this service does not come cheap, as LPs demand compensation to take on capital risk. Moreover, in a competitive setting, a DEX must give the maximum possible value to LPs to avoid being outbid. Thus, the largest share of tokens flows to LPs in exchange for their service of enabling trades. LPs then have the option of liquidating their tokens or locking them. If they choose to participate by locking and voting for pools, they receive fees and additional governance influence, reinforcing their stake.

Voters have the option to stay or let others contribute more 

MetaDEX voters are a unique stakeholder class: they receive all value generated by the protocol, paid weekly as incentives for voting and directing emissions. They also gain a slight antidilutive distribution in the form of vote rebases.

Voters are not providing a service to the MetaDEX in the same way LPs are, as they are invested directly in the pool’s growth, and they have a choice—to continue participating or not. Fundamentally, their shares of the pie are either maintained or increased through their continued participation. The key here: as shown in the example above, emissions are in their interest because they enable growth—by directing emissions to particular pools, voters are making a bet that this pool will grow in volume, generating more revenue back to them.

If they choose not to compound their participation and increase their votepower, they will see their share erode. Once again, active participation is not just incentivized, but required.

Nonparticipating tokenholders play a role

Although emissions prioritize LPs and lockers, “passive” tokenholders who simply hold the liquid token also serve an important function. By buying, selling, or otherwise using the token in broader DeFi (e.g. lending, borrowing, or even pairing it in a liquidity pool), they help establish the token’s price, effectively conducting real‑time “price discovery” of MetaDEX’s future prospects. 

This market‑based valuation is critical: it allows new participants to enter at a fair price and gives existing holders an ever‑present “option value” tied to the protocol’s long‑term growth. In other words, even if they are not capturing emissions or fee revenue, liquid holders create liquidity for the token itself—benefiting the ecosystem by ensuring an efficient marketplace for participation in the MetaDEX’s future production and giving LPs the option of selling their emissions. At all times, liquid holders retain the freedom to transition from “passive” to “active,” locking or providing liquidity with the token, avoiding dilution by future emissions, and sharing more directly in the MetaDEX’s success.

5. The rate of dilution: emissions across market conditions, and the MetaDEX Fed

Dynamic Emissions

Calibrating the dilution rate to expected growth is of major importance in any issuance scheme: too many emissions and you overspend, too few and you don’t have enough stimulus. And even the most well-tuned emissions schemes cannot anticipate significant changes in liquidity demand and near-term growth expectations.

In response, the MetaDEX Fed enables lockers to vote weekly (±1 BIP) to raise or lower emissions, adjusting the flow of newly minted tokens based on present conditions:

• High Emissions: Bootstrap new liquidity or new markets, can be crucial during rapid expansion phases. More aggressively recycles ownership away from passive participants to active ones, so there must be enough market desire to participate to support emissions.

• Lower Emissions: Mitigate oversupply and help sustain token value if the community thinks growth is plateauing or has become less resource‑intensive. Existing stakeholders remain more in control, but ability to bring in new participants lessens.

Lockers, having the greatest stake in the MetaDEX’s long‑term success, will find a balance between attracting LPs to productive pools and sacrificing too much of their own stakes for not enough upside. This is an adaptive, market-based feedback loop that offsets the classic pitfalls of “one‑size‑fits‑all” emission schedules.

So far, the emissions rate for Aerodrome, for instance, has aligned well with the ecosystem’s needs. This is reflected in the DEX’s growth, which has far eclipsed emissions growth; this suggests that the emissions rate has effectively brought in new participants capable of growing the protocol.

Resilience in Downturns

Liquidity retention during slow trading periods is a significant challenge for traditional DEXs. When trading volume declines, the fees earned by LPs decrease, causing some providers to withdraw their liquidity. This can lead to further reductions in volume and liquidity, creating a vicious cycle that destabilizes the pool and the broader DEX.

By issuing tokens on a predictable schedule, a DEX can smooth out the yield that LPs receive. This mitigates the uncertainty of fluctuating trading volumes and averts negative feedback loops in which liquidity vanishes in adverse market conditions. Even when trading activity dips, LPs still collect token emissions—a built-in “soft floor” on yields—helping to sustain liquidity until volumes rebound.

A smooth token emissions schedule means that when volume and fees temporarily drop, token rewards still flow, preventing a liquidity exodus that could spiral the DEX downward. Furthermore, when alternative DEXs struggle under these conditions, the MetaDEX picks up their LPs. This may lead to a ratcheting effect where the MetaDEX takes more market share during challenging times and then keeps it during better times.

6. Emissions can always exceed fees

Locking & Capitalized Fees

A key feature of the MetaDEX design is that emissions value exceeds fee revenue—crucial for attracting LPs from fee-only DEXs—without compromising sustainability. While issuing more token value than fees collected may seem counterintuitive, this misunderstands the MetaDEX’s structural advantages, which explicitly tie emissions to future growth.

A typical fee-only DEX cannot easily offer rewards higher than what it earns now. The MetaDEX, however, leverages a token that captures future trading fees. Investors evaluate this token based on discounted forward cash flows it can capture—a concept familiar to financial analysts.

The MetaDEX diverges critically from traditional equity dilution here. Unlike many equity issuance schemes, which dilute passive shareholders and may fall prey to agency issues without directly linking to value creation, the MetaDEX emits tokens exclusively to liquidity providers—rewarding them for actions that directly grow the protocol’s fee base. This transforms dilution from a cost with often uncertain outcomes into a positive-sum growth engine.

For example, a DEX collecting $1mm in fees and valued at 10 × ($10mm) can "afford" to issue $20mm in tokens—outstripping the current $1mm in fees. If fees double to $2mm, that same 25% dilution can yield $4mm in new tokens. Emissions remain sustainable because here the DEX's market cap grows in tandem with its fees at the same valuation multiple.

Rather than operating at a loss, the MetaDEX is effectively drawing on tomorrow's revenue. The MetaDEX Fed can adjust the dilution rate as needed, ensuring token issuance doesn't surpass the protocol's capacity to grow from extra liquidity.

The key insight: token-based value distribution creates efficient mechanisms for converting future revenue potential into present growth, removing traditional constraints on sustainable expansion.

Visualizing the relationship between fees and emissions

A simple theoretical model bears this out. If a protocol generates the same amount of fees every year $F$, at a discount rate $r$, and it dilutes each year at $D$, we see the following:

1. Market cap $M$ is valued as the present value of a perpetual fee stream: $M = \frac{F}{r}$

2. To ensure emissions exceed fees ($D \times M > F$):
   $D \times \frac{F}{r} > F \Rightarrow \frac{D}{r} > 1 \Rightarrow D > r$

That is, the dilution rate must be greater than the discount rate. If the discount rate is 10%, for example, then the protocol can dilute 15% each year in perpetuity—provided that confidence in the DEX is able to maintain in the form of a static $r$ in the face of stagnant fundamentals. This is theoretically possible but difficult to see play out.

Growth adds real-world sustainability. By embedding fee expansion ($g$) into the model, the MetaDEX avoids static dependence on $D > r$. Introducing growth, we revise the market cap formula to $M = \frac{F}{r-g}$,

which relaxes the emissions threshold to $D > r-g$. If $r = 10$ and $g = 5$, emissions must only outpace 5% (vs. 10%) to sustainably exceed fees.

Early high emissions bootstrap liquidity, but as fees compound and market share is consolidated, the protocol scales down dilution ($D \downarrow$) while riding the industry's broader growth trajectory. Over time, expectations converge toward mature benchmarks (e.g., global GDP-like $g$), and a track record suppresses $r$, all while emissions continue to outpace fee generation. This equilibrium is more robust than the former, aligning incentives with actual value creation rather than just market confidence.

This equilibrium can be broken out into three conditions for sustainability:

1. Emissions Sustainability: $(D > r-g)$
   This ensures newly minted tokens in dollar terms exceed the current year's fee revenue, tying emissions to future revenue growth. Growth $g$ justifies a portion of the dilution $D$. If the protocol's fee base expands sufficiently, the market can accept large annual token issuance today.

2. Tokenholder Return Premium: $(r > D)$
   Tokenholders expect an overall return $r$. If the token supply expands at $D$ (dilution), an individual holder who does not receive new tokens effectively sees $(r - D)$ as their net yield. For them to remain long-term holders, we want: $r > D$. Otherwise, the dilution cancels out their expected return, driving them to sell or avoid holding altogether.

3. Net Value Accrual $(g > D)$
   Even if emissions exceed fees, and investors enjoy $(r - D)$, the fundamental value of each token depends on the degree to which fee growth outstrips supply growth. The fees per token effectively expand at $(g - D)$. If $g > D$, then each token's claim on the fee base grows. If $g \leq D$, inflation may swamp growth, undermining sustainability.

Beyond fees and emissions

A simple "fees minus emissions" approach might declare a protocol "unprofitable" if token issuance surpasses current fees. Under an emissions scheme like the MetaDEX, this view is misguided: emissions are an investment in usage. When fee growth materializes, these upfront costs catalyze further expansion.

In practice, the MetaDEX’s success hinges on credible growth and adaptive governance. Many emissions-based DEXs failed not because the math was broken but due to factors such as the following:

1. Stagnant Growth: $(g=0)$ → higher perceived risk $r$ → the inequality $D>r−g$ breaks down. This has occurred often with DEXs that could not credibly establish themselves as dominant players.

2. Partial Fee Capture: Weak incentives or a poor value proposition lead to insufficient revenue.

3. Rigid Governance: Emission schedules can’t adjust quickly when market conditions change.

The MetaDEX sidesteps these pitfalls by design: emissions act as temporal reallocations of future value creation, converting long-term fee potential into immediate liquidity. With the MetaDEX, if growth is expected to slow, the MetaDEX Fed dials down $D$. If growth soars, tokenholders are confident that tomorrow's higher revenue justifies today's emissions.

Historically, MetaDEXs have shown consistent market share acquisition within ecosystems and against centralized exchanges, positioning the MetaDEX model for secular growth against broader cyclical conditions. Even if protocol use eventually converges with crypto-level growth and eventually GDP-level growth, any positive $g$ with a track record of performance keeps fee expansion in line with a well-managed emission strategy.

To summarize, a traditional approach might measure “annual fees minus annual emissions in $ terms” and label a protocol as “unprofitable” if emissions exceed fees. That neglects the reality that emissions are an investment—directly incentivizing liquidity and unlocking future fee growth. By contrast, the three-condition framework is forward-looking, incorporating discount rates ($r$), growth ($g$), and dilution ($D$) in a dynamic equilibrium. Emissions can surpass current revenue if—and only if—investors remain convinced that the protocol’s future usage will repay that “advance.”

Conclusion: emissions trade productive value for growth

The MetaDEX’s blend of 100% fee distribution, locking, and dynamic emissions creates a sustainable, competitive foundation for market dominance in a winner-take-most environment.

1. Emissions encourage liquidity →

2. Deeper liquidity improves execution and grows volume →

3. Higher volume generates more fees →

4. All fees flow to voters holding locked tokens→

5. Voters can tune emissions to meet liquidity demands→

6. System remains resilient—even if emissions outpace near‑term revenue.

Through constructive dilution, the protocol continuously rewards active participants, aligning liquidity providers and tokenholders around the MetaDEX’s future success. Meanwhile, a programmatic, immutable emissions schedule prevents reckless over‑issuance, and automatic stabilizer-like market forces avert catastrophic liquidity collapses during downturns. In this way, “overpaying” in emissions doesn’t become a liability; it becomes a rational investment in the protocol’s long‑term trajectory.

Part 4 concludes this overview of the MetaDEX’s foundations by demonstrating how a token can unify all DEX stakeholders under a symbiotic economic framework that thrives in ways competing DEX models—and alternative organizational models—do not.