Merkl Insights #5: What’s The Best Incentive Strategy When Launching A Token?

New tokens are launched every week. Regardless of the token's purpose, utility, or vision, the goal is almost always the same: boost its usage, circulating supply, and liquidity.

Just as it’s crucial to establish a go-to-market plan and carefully consider the tokenomics, it’s equally important to define an incentivization strategy before the launch.

Indeed, incentives can significantly help increase both the liquidity and usage of the token.

So, what’s the best strategy to launch a token?

We won’t be discussing memecoin launches here, as their strategy primarily relies on creating buzz, nor will we cover stablecoin launches, which already have a dedicated Merkl Insights.

First and foremost, incentive campaigns shouldn’t be launched on day one of the token's release.

At launch, it’s better to rely on the protocol's liquidity, also known as PoL (protocol-owned liquidity). Indeed, at the time of launch, the token is often volatile, making liquidity provisioning risky. This volatility creates a risk premium that requires a significant amount of incentives to compensate. Once the volatility of the first few days has settled, that's when it's the right time to roll out incentive campaigns!

Once the incentives are launched, there’s no need to distribute them across multiple liquidity venues. It’s more effective to focus incentives on one super-deep pool, which will serve as the backstop for all other places where the token is listed.

Pro tip

Start incentive campaigns only after the token’s launch volatility has settled. Focus the incentives on a single, deeply liquid pool.

An incentive campaign on a liquidity pool on a decentralized exchange (DEX) is often more effective and cost-efficient than purchasing liquidity on a centralized exchange (CEX). Additionally, the liquidity on the DEX can be mirrored across other platforms where the token is available, including CEXs.

For example, if a token is listed on a CEX and has liquidity on an L2 like Base, market makers can replicate the L2 liquidity on the CEX by capturing arbitrage opportunities. When people buy on the CEX, market makers can simultaneously purchase at a lower price on the DEX, helping to balance the price between the two platforms.

Therefore, it’s better to focus incentives on a liquidity pool on a DEX.

If you're liquid on a DEX, you'll be liquid on a CEX!

Want to launch a token? Contact Merkl!

Merkl is the leading platform for incentive distribution, with a team of experts in liquidity growth and incentive management. Merkl manages your incentive program from A to Z, covering reward calculation and allocation, distribution automation, performance insights, data and reporting, so that you can focus on your core product. From large liquidity programs such as Superfest or ZKsync Ignite to simpler airdrops or point systems, Merkl can handle it all!