Liquidity mining is the preferred method for many projects to grow, but its cost is extremely high and top-tier market makers have already withdrawn from this field, which urgently needs a sustainable token model. Bankless has inventoried the models and representative projects for building sustainable liquidity meta-language.
1) LP Gauge token economic model incentivizes liquidity providers to lock LP tokens for higher rewards and greater governance power. Balancer uses this model and maintains strong demand for veBAL (stakers earn 65% of protocol fees). 2) Option liquidity mining distributes call options instead of native tokens, adjusting user and protocol incentives. Dopex just announced testing call option incentive model. 3) Berachain is a Layer1 aiming to solve liquidity issues at consensus layer, incentivizing users to keep assets on-chain with higher yields and creating deposit flywheel effect with its “triple token model.” More deposits = deeper stablecoin liquidity = more traders using Berachain = more protocol fees = more rewards for $BGT holders = more $BGT demand. DeFi is still early and primitive with a lot of work to be done. Building sustainable economic frameworks is an important part of this process. Alternative solutions to liquidity mining show that DeFi protocols can optimize liquidity while benefiting their ecosystems in the long run.
Reference: https://www.bankless.com/sustainable-token-models-liquidity-gains
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