How Do Liquidity Mining Programs Influence TVL and Token Supply?
Liquidity mining programs offer additional token rewards to users who provide liquidity to the protocol's pools. These programs rapidly increase TVL by attracting capital, but they also rapidly increase the circulating token supply through the reward emissions.
This trade-off means that while TVL increases, the token's price can be suppressed by the high inflation. The program's success is judged by whether the long-term utility gained outweighs the cost of the inflationary supply.
Glossar
Tvl
Value ⎊ The total aggregate worth of all assets deposited into a specific decentralized finance protocol, typically denominated in a stable unit for consistent measurement.
Token Supply
Circulation ⎊ The token supply, within cryptocurrency, options, and derivatives, fundamentally represents the total number of tokens or units existing, whether currently in circulation or reserved for future release.
Mining Programs
Incentive ⎊ Mining programs in decentralized finance offer incentives to users who contribute resources, typically liquidity or collateral, to a protocol.
Liquidity Mining
Incentive Mechanism ⎊ Liquidity Mining involves rewarding users, typically with the protocol's native token, for providing capital to decentralized liquidity pools or staking mechanisms.
Liquidity Mining Programs
Program ⎊ Liquidity Mining Programs are structured initiatives designed to attract and incentivize users to deposit assets into an AMM pool, usually by offering native protocol tokens as an additional yield on top of trading fees.