How to run incentive campaigns that actually work

Incentives are fundamental to the success of any company or project operating onchain.
✅ Do it right, and you unlock exponential growth and soaring TVL
❌ Do it wrong, and you waste capital and resources

Set clear goals 🎯

Launching incentives requires careful planning. From the very beginning, it's essential to define clear, and precise goals for what you want to achieve. Every goal should be measurable and tied to KPIs you can easily track.

To monitor your campaigns effectively, set up scripts to analyze key metrics such as TVL per $, APR evolution relative to TVL, and more.

One thing is certain: you can't hit a target you don't measure.

Focus rewards on your bottleneck 🔻

A good approach for launching incentives is to address the weak points. To do this, identify the limiting factor that currently prevents your project from scaling: is it a lack of lenders, borrowers, specific liquidity providers?

Your rewards should be heavily and disproportionately concentrated on that weaker side.

Targeting this constraint maximizes the leverage of your incentive budget, ensuring every distributed reward directly contributes to unlocking your project's full growth potential.

Keep incentives simple and linear 🪶

Choose your campaign participation parameters wisely. Every added layer of eligibility or conditional rule creates friction, causing genuine users to drop off or become frustrated by unclear requirements.

More critically, complexity is an open invitation for malicious actors. Because you are distributing capital, any convoluted set of rules, or exclusions, will inevitably be exploited by bots and mercenary capital.

To safeguard your budget and maintain control, prioritize transparent, linear structures that eliminate loopholes and maximize participation without requiring complex verification.

Don't distribute liquid tokens if undervalued 🔒

If your project is undervalued or not yet valued, allow some time for market discovery by distributing non-transferable or vested tokens.

Distributing liquid tokens would attract short-term speculators who may immediately dump rewards, whereas delaying gratification weeds out opportunists and builds a committed community of believers.

Euler

Euler is distributing rEUL, a wrapped version of its native EUL token, as reward. One EUL token can be converted into one rEUL, but the reverse process is not always straightforward. When users receive rEUL, they can immediately redeem 0.25 EUL per rEUL, while the remaining 0.75 EUL can only be claimed after a 6-month vesting period. Additionally, rEUL is non-transferable, meaning it cannot be sold or traded, thus preventing the creation of a secondary market.

Be cautious with points ❗

Points are a popular incentive, especially for projects that have no established value yet.

However, points come with important downsides. First, points don't display an APR, so users can't see what they're earning. They can also be mispriced: undervalued points may lead you to overpay for liquidity, while overvalued points can create negative sentiment during an airdrop and increase selling pressure.

Additionally, points require more management and operational work on your side compared to standard token incentives.

Understand your cost of liquidity ⚖️

Incentive campaigns follow a supply and demand dynamic: users expect to be paid for the risk they take, while your goal is to pay as little as possible for the liquidity you need.

Over time, campaigns converge toward an equilibrium APR. This APR depends on risk, underlying assets, protocol and chain maturity, and market conditions.

Check comparable campaigns in the Merkl App to estimate this equilibrium and design incentives that attract liquidity without overpaying. Benchmark against truly similar opportunities: early-stage projects should compare themselves to peers, not to mature ecosystems with deep liquidity.

Start small, scale fast 📈

When launching an incentives program from scratch, TVL is often low, which can mechanically result in very high APRs. At this stage, supply and demand for yield are not yet stabilized, meaning you risk significantly overpaying for liquidity.

Starting with a smaller incentive budget allows the market to find its footing without excessive spend. Once you see real traction, you can scale rewards up. This is also why short, frequently renewed campaigns work best.

The long-term objective is for liquidity to remain even after incentives fade. To achieve this, reduce rewards gradually and progressively until organic yields take over. In lending markets, this typically means borrower-paid rates replacing the bonuses initially paid to lenders.

Deploy incentives early 🌅

Incentives are most effective in the bootstrapping phase, when liquidity is thin and adoption is limited: launching a new collateral, an asset, or a new protocol on a chain.

Early-stage opportunities offer higher yields, accelerate price and risk discovery, and tap into untapped user pools. Strategically deploying incentives at this stage maximizes adoption and network effects, laying a strong foundation for future scaling.

Don't neglect native APRs 🏦

Incentives should be used to attract users, not just to inflate TVL. While TVL signals growth, what really matters are native APRs and protocol-generated fees.

Users chase sustainable yields: incentives can bring them in, but high native APRs are what make them stay.

Keep a close eye on trading APRs from actual DEX volume, lending APRs from on-chain markets, and fee generation on perpetual DEXes. By focusing on these, you ensure your incentives drive meaningful, long-term engagement rather than temporary liquidity spikes.

Focus on passive users 🪑

Retention is the hardest challenge. The most active users often represent mercenary capital chasing rewards, moving on as soon as incentives dry up.

Focus instead on passive users. Their capital is sticky and less sensitive to market fluctuations. Invest in attracting them from external platforms, since they are less likely to visit your frontend frequently.

The best way to retain them is through campaigns that run as continuous programs funded by real, recurring revenue. Sustainable incentives give users confidence to stay long-term, rather than moving liquidity every week to chase the highest APR. By prioritizing long-term value over short-term chasing, your program builds loyalty and engagement that lasts well beyond the initial rewards.

Aave

With the Merit program, Aave is distributing incentives from actual DAO revenues. This model creates a loyalty loop built on sustainable value-sharing rather than temporary boosts.

Bring bluechip protocols on board 💎 (for chains)

If you are a chain running incentive campaigns, take established, reputable protocols like Aave or Morpho into account when allocating your incentive budget.

Incentives are far more efficient when distributed through trusted players. Large LPs and users naturally engage with protocols they know and respect, unlike native or unproven projects where adoption is slow and risky.

By directing rewards toward bluechip protocols, your campaign leverages credibility, maximizes participation, and ensures every reward has a meaningful, lasting impact.

Don't build in-house 🤝

Building in-house incentives may seem logical, but the actual costs tell a different story. You need a dedicated team of developers to build, secure, and maintain the infrastructure. It's a long-term commitment, not a one-time project, and it's resource-intensive.

Using a platform like Merkl drastically cuts your time to market to just a few days. You can quickly test ideas, iterate, and scale. It's cheaper than assembling an in-house team and requires no maintenance. Plus, your campaign benefits from Merkl's distribution, reaching 200k MAU actively seeking yield opportunities on the Merkl App.

Team up with experts 💼

If you're unsure where to start with your incentives strategy (what to reward, how to design it, or how to optimize performance), dedicated advisory teams specializing in DeFi strategies can help you plan and monitor your campaigns effectively.

They can also assist if you lack tracking or KPI measurement capabilities, ensuring you can monitor results, iterate quickly, and make data-driven decisions that maximize the impact of every reward.

Arbitrum

As part of the Arbitrum DeFi Renaissance Incentive Program (DRIP), Arbitrum works with Entropy Advisors to design the incentive strategy. Merkl provides the rewards infrastructure, running campaigns according to Entropy's plan. This setup allows Arbitrum to take a hands-off approach, letting Entropy handle all performance tracking and reward optimization.

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This guide is inspired by @totomanov's thread and the insights we've gathered at Merkl from running 30,000+ incentive campaigns for 250+ clients.

The content of this page is provided for informational and illustrative purposes only. These recommendations and tips focus on incentive campaign design and management and do not constitute investment or financial advice under any circumstances. Campaign creators are solely responsible for the decisions they make.