Merkl Insights #3: How to Make Sure your Incentives Do Not Cannibalize your TVL?

The goal of every blockchain is to attract as many users as possible and, ultimately, grow their TVL. To achieve this, they distribute tokens as incentives to protocols building on their chain, encouraging them to pass those rewards on to the end-users.

But how can you make sure these rewards are effectively allocated to users who bring new liquidity to the chain?

The issue with many liquidity programs is that they may end up rewarding users who simply move liquidity from one protocol to another on the same chain, instead of attracting new liquidity from different chains.

This doesn't increase TVL; it just shifts volume around.

However, there are simple ways to ensure that your incentives go to new liquidity providers: eligibility filters. With Merkl, you can apply eligibility filters to your incentive campaigns and reward only users who have bridged liquidity from another chain. You can also blacklist current and past token holders, ensuring rewards go exclusively to new users.

Pro tip

Using bridge-based eligibility ensures that liquidity on your chain is genuinely new. However, blacklisting existing users can potentially cause frustration within your community.

Merkl in action A great example of this in action is Merkl’s management of Optimism’s Superfest liquidity event. To be eligible for rewards, users had to first bridge liquidity via Jumper. This approach resulted in a $100M+ TVL increase in just 8 weeks!

Want to grow your TVL? Contact Merkl!

Merkl is the leading platform for incentive distribution, with a team of experts in liquidity growth and incentive management. We've distributed over $100M for Web3 giants like Uniswap, Trustwallet, and Optimism, and powered major liquidity events like Superfest and zkSync Ignite.