During DeFi Summer, yield farmers poured into new protocols, chasing sky-high returns and easy money. Liquidity flooded in, but loyalty didn’t. As quickly as it arrived, much of it vanished.
Now, the crypto markets are maturing. Mercenary capital alone won't sustain a project, and short-term point farming won't build lasting ecosystems. Founders and liquidity providers alike are realizing a harder truth:
Incentives should align with the project's life cycle. To attract initial liquidity, rewards should be high. As the project's risk profile decreases, incentives can be gradually reduced. However, no project can succeed without a great user experience and a compelling base yield.
That was the message delivered by Adam Bilko, Head of Credit Fund at RockawayX, during his talk at SEZ Dubai 2025, hosted by Superteam UAE.
In this article, we'll explore what DeFi's past taught us about incentives, where the market is heading, and how builders can design programs that attract capital and committed partners.
What We Learned From DeFi Summer
DeFi Summer kicked off a new era of experimentation. Protocols like Compound, Uniswap, and SushiSwap pioneered liquidity mining, rewarding users with governance tokens for providing or borrowing assets. At first, the strategy worked. Liquidity surged and activity exploded while Ethereum’s daily active addresses hit record highs.
But behind the excitement, cracks were forming.
High token incentives attracted a wave of yield farmers chasing short-term gains. Some protocols offered returns as high as 60% in the first month, but that only encouraged mercenary user behavior, not long-term commitment. Serious liquidity providers weren’t interested in taking outsized risks for short bursts of yield—especially when many opportunities were forks on other chains where risk profiles were much higher and fundamentals were weaker.
The landscape became saturated with copycats and unsustainable rewards. Inflation soared and dump pressure crushed token prices.
In hindsight, the lesson of DeFi Summer was clear: Token incentives alone cannot create sustainable liquidity.
Protocols needed something stronger—an incentive model that aligned users with the long-term health of the ecosystem. By late 2022, this led protocols to shift away from immediate token rewards to a new model: points systems.
The Rise (and Flaws) of Points Campaigns
Instead of distributing tokens directly, projects began awarding non-transferable points for user activity. These points could later boost airdrop eligibility or convert into future rewards. The idea was to build deeper engagement, slow down early selling pressure, and address growing regulatory concerns.
The shift was led by Blur, which launched a real-time, gamified points system to reward marketplace activity like listing and bidding. Rather than promising instant payouts, Blur offered users a chance to earn future BLUR tokens based on points accumulated over time. It was a viral sensation in the web3 space, setting the template for systems that followed.
Around the same time, Arbitrum popularized the “airdrop meta” without explicitly using a points system. Its retroactive airdrop rewarded users who had meaningfully interacted with its ecosystem—bridging assets, using dApps, and participating in governance. By tracking early user activity and tying it to future rewards, Arbitrum inspired dozens of protocols to launch points campaigns with an eye toward later token distributions.
Points systems caught on quickly. Projects like EigenLayer, Friend.tech, and LayerZero adopted similar models to drive user growth and engagement ahead of their token launches.
Still, points didn’t fix the core incentive problems.
Transparency quickly became a major issue. Participants often had no clear view of how points would translate into rewards, how heavily distributions would be diluted, or when any tokens would unlock. EigenLayer’s airdrop became a flashpoint: U.S. users were excluded entirely, and major liquidity contributors—such as users of EtherFi and Renzo LRTs—found themselves initially disqualified despite being funneled into the ecosystem’s TVL growth by EigenLayer’s own design. Billions in capital had been committed, yet many participants received little to no allocation, while base yields hovered in the low single digits.
Other projects revealed deeper flaws. Hamster Kombat, a gamified crypto exchange simulator, disqualified 63% of its players for cheating, manipulated distributions to favor influencers through referrals, and repeatedly postponed its TGE while locking a significant portion of tokens. LayerZero attempted to limit sybil attacks by restricting initial token distribution to just 8.5% of the supply, but still faced user backlash for unclear reward mechanics and perceived unfairness.
Across the board, a pattern emerged: Projects overpromised, underdelivered, and in many cases left communities frustrated or disillusioned. TGE postponements, shifting airdrop sizes, and hidden rules made it almost impossible for participants to reliably assess the value of their contributions.
Manipulation also became rampant. Wash trading, sybil attacks, botting, and multi-wallet farming diluted real user engagement and damaged the integrity of many campaigns. Without strong sybil resistance or clear qualification criteria, farming hundreds of wallets became commonplace, especially in DeFi environments with minimal KYC protections.
For serious liquidity providers and institutional participants, these weaknesses mattered. Without enforceable rules and predictable reward frameworks, many points campaigns became too opaque and risky to justify major capital commitments.
Points campaigns succeeded in generating short-term hype. But they rarely succeeded at building the long-term trust and alignment that serious protocols need to survive.
Where We Are Now
The weaknesses exposed by points campaigns forced a broader rethink of incentive design across the industry.
Today’s landscape is more deliberate—and more fragmented—than during DeFi Summer. Protocols rarely rely on a single strategy. Instead, most use a combination of real yield, token incentives, and points campaigns, adjusting the mix based on their growth stage, liquidity needs, and user profiles. The goal is to attract committed participants, not short-term farmers, and to build ecosystems that can sustain themselves beyond incentive programs.
Real yield has become the foundation for serious projects. By sharing actual revenue generated from fees, trading activity, or asset management, protocols offer liquidity providers a direct stake in the platform’s success. This shift moves away from inflationary emissions and toward more sustainable returns.
Token incentives are still common, but with more discipline. Rather than aggressive short-term emissions, projects are stretching distributions over longer vesting schedules, structuring airdrops more thoughtfully, and using liquidity mining programs targeted at strategic partners instead of blanket giveaways.
Points campaigns remain part of the playbook, but skepticism is higher. After a string of controversial airdrops and poorly communicated reward programs, users and institutional players are demanding greater transparency around point valuation, sybil resistance, and distribution rules.
Attracting liquidity is only the first step. In today’s environment, earning trust—and proving long-term alignment with users—is what separates projects that survive from those that fade away.
How to Structure Sustainable Incentive Programs
Building lasting liquidity requires more than attractive rewards. It demands clear communication, strong risk management, and incentives that match the realities of your business model, not just the short-term needs of a launch.
At the foundation, protocols should approach liquidity providers the way they would approach investors: with transparency, clear expectations, and a shared vision for growth.
A strong incentive program starts with the basics.
Protocols need to clearly describe their business model, the assets they need, and the opportunities they offer to liquidity providers. Specifics matter. Whether you're looking for stablecoins, ETH, or BTC, setting clear capacity limits and articulating return profiles—whether sourced from real yield, token emissions, or point accumulation—builds early credibility.
Security is no longer optional; it’s a defining standard. Overpaying for audits, securing contracts through both technical and legal measures, and mitigating systemic risks show liquidity providers that their capital is being treated with care. Projects like Kamino have demonstrated how upfront investment in security pays off, both in reputation and long-term ecosystem stability.
And effective program design, especially in terms of timing, matters just as much as security. In general, the mistake projects make is launching a campaign while having almost no TVL; therefore, nobody takes them seriously. These campaigns only make sense for projects that have already built up TVL and a reputation, as it will enable proper FOMO to stir up from the campaign. Additionally, strategic announcements—such as securing investment from major players like Binance—can provide further credibility at the right moment.
Closing pre-TGE funding rounds before launching an incentive program is also important, as it ensures early investors are aligned without distorting the liquidity incentives.
Meanwhile, simplicity often separates successful campaigns from forgettable ones. Programs that are easy to understand are far more likely to gain traction, especially with early adopters. Overly complex point structures or opaque reward systems can deter participation before it even starts.
Protocols should also ensure consistency in how rewards are distributed. While it’s acceptable to offer different terms to early liquidity providers who take on more risk, it’s critical to treat liquidity providers equally when they enter at the same time. Preferential treatment among simultaneous participants erodes trust and weakens long-term engagement.
Instead of relying solely on a TGE to unlock participation, protocols should focus on creating ongoing value and usage. Integrations with other protocols aren’t just about utility—they can be a strategic advantage. By collaborating with partners to use their tokens as incentives, projects can subsidize their own liquidity pools, reduce direct emissions, and build stronger network effects across ecosystems.
Teams should also set realistic FDVs, rather than inflating project valuations too early. Keeping valuations grounded ensures that serious contributors remain engaged and that incentives don’t become disconnected from long-term project fundamentals.
Finally, smart contracts alone are no longer sufficient. Legal agreements are becoming standard among top projects—especially when engaging institutional liquidity providers—who expect enforceable protections alongside the code.
The protocols that succeed won’t be the ones offering the flashiest incentives. They’ll be the ones who structure their programs to reward trust, transparency, and aligned participation over the long term.
How the Market Is Evolving
The next wave of liquidity providers will look very different from the early DeFi user base.
Traditional finance institutions, proprietary trading firms, and structured investment groups are beginning to move into the space, bringing with them different expectations around security, transparency, and return profiles. As liquidity needs shift, the line between venture capital and liquidity provision is also starting to blur. Many funds that traditionally focused on early-stage equity are now directly participating in liquidity rounds, staking, and yield strategies alongside their investments.
With institutional money comes greater legal complexity. Recourse rights, formal agreements, and clearer mechanisms for dispute resolution are becoming standard expectations for serious participants. Traceability will matter more, too. KYC requirements, still controversial in DeFi, are gaining broader acceptance as larger players demand verifiable identities and transactional transparency to manage their own risk exposure.
New business models are beginning to emerge in response. Investment banking-style firms, like Turtle Club, are starting to fill the gap between liquidity provision and strategic advisory, offering services that blend elements of traditional finance with the flexibility of crypto-native structures.
Composability is unlocking new possibilities for capital efficiency. Protocols are designing systems that allow liquidity and incentive structures to be layered, customized, and reused across multiple ecosystems, opening the door to more flexible and collaborative financial products.
At the same time, the investor base is undergoing a fundamental shift. Retail participation, while still important, is declining in relative influence. Professional capital now drives many of the major liquidity movements, and that shift is pushing required returns lower as competition for quality opportunities intensifies.
Over time, long-term LP alignment will become not just a goal, but a necessity. Protocols that can build real partnerships with their liquidity providers—based on transparency, shared upside, and reliable governance—will be the ones positioned to thrive. Meanwhile, the industry itself is moving toward greater consolidation, with leading projects capturing disproportionate shares of TVL, user bases, and strategic partnerships.
In short, the future of crypto liquidity is more professional, more structured, and more selective.
The Real Work Begins After Liquidity
Attracting liquidity is essential to gaining early momentum, but it's only the beginning.
Protocols that prioritize security, communicate transparently, and structure incentives with long-term alignment in mind will be the ones that endure. Sustainability depends not just on launching a program, but on continuously innovating and adapting to an evolving market. Incentives must be tied directly to the business model, rewarding behaviors that strengthen the ecosystem rather than simply inflating short-term metrics.
As new players enter the market and competition intensifies, the bar for trust, professionalism, and execution will only get higher. The next generation of successful protocols will be built by teams who understand that liquidity is earned, not bought, and that the real work begins after the first wave of deposits arrives.
