Real-world liquidity mining: lessons learned from Jet.com

The Agricultural Revolution of DeFi is officially in full swing. While they weren’t the first, Compound has started an irreversible trend of instituting incentive programs in order to attract liquidity. These programs take the form of distributing tokens that offer governance rights over the network with an implied future claim on cash flows. The latter being enabled by the former since holders will be able to vote in an explicit value capture mechanism.

There are numerous liquidity mining programs live at the moment with several planned in the near future, but Compound and Balancer have received the lion’s share of attention since they are distributing a large percentage of the overall network which has reached market capitalizations of $647 and $61 million, respectively. This network appreciation has led to huge capital inflows which is everything in a world where liquidity is king.

Suffice to say, the cat is out of the bag. These programs have shown to be incredibly effective, putting any project not implementing them at a competitive disadvantage. To put it into perspective, right now liquidity providers on Balancer can earn ~7x more than on the tokenless Unsiwap.

The remarkable growth of Compound and Balancer shouldn’t come as a surprise. Humans follow incentives and right now there are $25 million of incentives every month for users of DeFi to move capital into these pools.

What makes this type of incentive mechanism interesting is that the payments are not made in any form of money but rather in a claim on the network itself which maintains value because of the expected claim on future money. This makes the payments look a lot like equity distributions.