Defi is receiving an impulse from the appearance of a large number of new block chains such as Berachain, Ton, Plume, Sonic and many others. Each new chain brings with it an avalanche of incentives, attracting users with yields that echo the first days of performance agriculture in 2021.
But is it something sustainable? As each new block chain struggles to generate impulse, they inevitably face the same dilemma: how to build sustainable ecosystems that survive beyond the end of their incentive programs.
Incentives are still one of Crypto’s most powerful starting tools: an elegant solution for the cold start problem attracting users and liquidity. However, incentives are just a starting point. The final objective is to build a self -sufficient economic activity around the DEFI protocols.
While the broader defi market has evolved considerably, the fundamental approach to the growth driven by incentives has changed little. To define it in this new phase, these strategies must be adapted to reflect the realities of current capital dynamics.
Despite the obvious need, most incentive programs end up failing or producing disappointing results. The current market composition is very different from 2021, where it was relatively simple to execute an incentive program. The market has changed and there are some key aspects to consider when thinking about the formation of capital in Defi.
More blockchains than relevant protocols
In traditional software ecosystems, platforms (Layer-1) generally give rise to a larger and diverse set of applications (CAPA-2 and beyond). But in today’s landscape, this dynamic turns. Dozens of new block chains, including Movement, Berachain, Sei, Monad (next), and more, have been launched or are preparing. And yet, the number of protocols that have achieved real traction remain limited to some outstanding names such as Ether.fi, Kamino and Pendle. The result? A fragmented landscape where block chains rushes to the same small group of successful protocols.
There are no new degrees in this cycle
Despite the proliferation of chains, the number of defi assets investors has not kept the pace. Users experience friction, complex financial mechanics and a deficient wallet/exchange distribution have limited the incorporation of new participants. As a friend of mine likes to say: “We have not coined many new titles in this cycle.” The result is a fragmented capital base that continually pursues performance in ecosystems, instead of promoting a deep commitment in anyone.
TVL fragmentation
This capital fragmentation is now being developed in TVL statistics (total locked value). With more chains and protocols pursuing the same limited group of users and capital, we are seeing dilution instead of growth. Ideally, capital tickets should grow faster than the number of protocols and block chains. Without that, capital simply extends thinner, undermining the potential impact of any individual ecosystem.
Institutional interest, retail rails
Retail trade can master the narrative, but in practice, institutions promote most of the volume and liquidity. Ironically, many new blockchain ecosystems are poorly equipped to support institutional capital due to the lack of integrations, the lack of support of underdeveloped custody and infrastructure. Without institutional rails, attracting significant liquidity becomes a steep battle up.
INEFICIANCIES OF INCENTIVES AND MERCANE CONFIGURATIONS OF THE MARKET
It is common to see the launch of new protocols with poorly configured markets, including pool imbalances, sliding problems or non -coincident incentives. These inefficiencies often result in campaigns that disproportionately benefit experts and whales, leaving little ago in terms of long -term value creation.
Building beyond incentives
The Holy Grail of incentive programs is to catalyze the organic activity that persists after the rewards dry. While there is no plan for guaranteed success, several fundamental elements may increase the chances of building a defined ecosystem.
True ecosystem utility
The most difficult but more important objective is to build ecosystems with real and non -financial utility. Chains such as ton, unichain and hyperlycides are early examples in which the usefulness of Token extends beyond pure performance. Even so, most new blockchains lack this type of fundamental utility and must depend largely on incentives to get attention.
Stable Stablecoin Base
The stables are the cornerstone of any functional defi economy. An effective approach often includes two leaders that anchor loan markets and create AMM liquidity (automated market manufacturer). Designing the correct mixture of Stablecoin is essential to unlock the activity of loans and early trade.
Main Assets Liquidity
Together with the stables, deep liquidity in blue chip assets such as BTC and ETH reduces friction for large assigners. This liquidity is crucial to incorporate institutional capital and allow efficient capital strategies.
DEX Liquidity Depth
Liquidity in AMM pools is frequently overlooked. But in practice, the risk of sliding can derail great operations and suffocate the activity. Dex and resistant DEX liquidity construction is a previous requirement for any severe defi ecosystem.
Loan market infrastructure
Loans are a primitive fundamental defi. A deep loan market, particularly for the stable, unlocks the potential of a wide range of organic financial strategies. Robust loan markets naturally complement Dex’s liquidity and increase capital efficiency.
INTEGRATION OF INSTITUTIONAL CUSTODY
The custody infrastructure, such as fire blocks or bitgo, has much of the institutional capital in cryptography. Without direct integration, capital allocators are effectively blocked from new ecosystems. While it is often overlooked, this is a critical activation factor for institutional participation.
Bridge infrastructure
Interoperability is essential in the world defined today. Bridges such as Layerzero, Axlar and Wormhole serve as critical infrastructure to transfer value through chains. Ecosystems with bridge support without problems are much better positioned to attract and retain capital.
The intangibles
Beyond infrastructure, there are subtle but critical factors that influence success. Integrations with the main oracles, the presence of experienced market manufacturers and the ability to incorporate Marquee’s protocols help to throw a prosperous ecosystem. These intangible elements often make new chains or break.
Sustainable Capital Formation in Defi
Most incentive programs do not fulfill their original promise. Over-optimism, misaligned incentives and fragmented capital are common guilty. It is not surprising that new programs often attract skepticism and accusations of enriching experts. However, incentives remain essential. When designed well, they are powerful tools to start ecosystems and create a lasting value.
What differentiates successful ecosystems is not the size of their incentive programs, it is what comes next. A solid base of stablcoins, deep AMM and loan liquidity, institutional access and well -designed user flows are the basic components of sustainable growth. Incentives are not the final game. They are just the beginning. And, in today’s defi, there is certainly a life beyond incentive agriculture.
