Overview
A liquidity incentive is a reward offered to attract liquidity, such as trading fees or token emissions. It bootstraps and retains pools. Incentives shape liquidity distribution.
How It Works
Protocols reward LPs with fees and emissions to encourage deposits. Rewards may vest or require staking. They are a key growth tool.
Why It Matters
Liquidity incentives drive the liquidity that makes DeFi usable. They also create inflation and mercenary capital risks. Their design is central to protocol growth.
Related Concepts
Liquidity incentives relate to Liquidity Mining, Fees, and Emissions. They attract Pool liquidity.