Do Vested Rewards Work?

The vision of yield farming (aka liquidity mining/incentives) is clear. Instead of selling wild dreams in a white paper to disperse tokens, protocols are now issuing tokens to users who utilize these protocols, that have real working products and add some form of value to the ecosystem. Liquidity mining bootstraps adoption by supercharging growth through financial incentives. Users can earn governance tokens, which are effectively a call option on value capture.

These incentive programs have become a cornerstone of growth strategies and I wanted to spend my daily today looking at a specific aspect of it – do vested rewards work?

First, let’s zoom out. What are the benefits of a project leveraging these programs? Simply put, (1) it supercharges growth (2) attracts awareness and liquidity to the platform (3) provides a more fair distribution (relative to ICOs), and is supposed to be better for decentralization and (4) provides potentially less regulatory risk than ICOs. But while yield farming’s core intent is to hopefully foster the growth of a community, a lot of the liquidity mining programs we’ve seen in action have led to the opposite.

The most obvious example is Curve, an AMM that has clear product-market fit with its custom bonding curve that helps it achieve extremely good slippage for stable-asse