Just in the last week, base layer platforms Celo and Avalanche also released incentive programs worth hundreds of millions of dollars – part of a broader push from competitors to the Ethereum blockchain such as Binance Smart Chain, Polygon and Solana to attract liquidity and users.
While some traders are eager to jump in – Fantom is up 70% on the day, while Celo has rallied 86.6% – some observers worry that the programs could have unintended consequences as mercenary liquidity providers swoop in for short-term gains.
Slicing the DeFi pie
“I’m pretty interested to be incentivized by these new platforms,” said a member of eGirl Capital who goes by @DegenSpartan on Twitter.
“Money is a great incentive to bribe people to migrate over assets and explore the ecosystem – as long as nothing blows up,” @DegenSpartan said.
Not all investors, however, believe the competing programs are sustainable. In a tweet this morning, Kyle Samani, co-founder and managing partner at Multicoin Capital, said that the programs may increase the risk of regulatory oversight and that inviting short-term speculators could even stifle growth:
But Andre Cronje – founder of Yearn.Finance, a platform that offers automated returns from financial products on Ethereum, and a member of the Fantom Foundation – says Fantom’s program is designed to avoid those pitfalls.
“[It’s] much better to incentivize builders that can attract liquidity, than to simply incentivize the same teams over and over to attract liquidity locusts,” Cronje said in an interview with CoinDesk.
“We believe that builders are the best ones to judge where funds should be allocated, whether they should be provided to build the protocol, or if they need to be used for liquidity mining,” Fantom said in its announcement, adding:
Fantom’s program will distribute FTM tokens to projects that maintain TVL thresholds for set periods of time, targeting projects that surpass $5 million and $100 million. Disbursed funds can then be used for liquidity mining or protocol expansion efforts, such as hiring, at the project’s discretion.
Cronje believes the allocation method will encourage innovation rather than attract only those looking for a short-term profit.
“This way we might actually see new products, not just the same copy/paste products on every chain,” the DeFi developer said. “We’ve stunted innovation with existing liquidity programs because smaller teams don’t want to try to compete. Now they can.”