Case study: How Metrom’s KPI-based incentives outperform traditional liquidity models
Liquidity mining is quintessential to bootstrap liquidity, but traditional incentive models often lead to inefficient use of resources.
In a recent case study with Uniswap growth team on Sonic, we demonstrated how Metrom’s KPI-driven incentives significantly outperform traditional liquidity mining methods.
The challenge with traditional incentives
Traditional liquidity mining campaigns often distribute fixed token rewards irrespective of the actual liquidity achieved. This model causes:
- Wasted tokens: Rewards distributed even when liquidity targets are missed.
- Mercenary capital: Short-term LPs enter to reap rewards but exit quickly, causing liquidity instability.
- Inflated TVLs: High TVL numbers don’t always equate to effective liquidity, leading to thinly spread capital and higher slippage.
Metrom’s solution: KPI-based rewards
Metrom flips the traditional model by tying reward emissions directly to measurable outcomes, such as Total Value Locked (TVL). In our shadow campaign with Sonic, we clearly demonstrated how this KPI-based method conserves resources and drives strategic liquidity deployment.
Campaign Snapshot:
- TVL Target: $2.5M
- Duration: 7 Days
- Reward Allocation: 1% of total Sonic campaign rewards (scaled proportionally for demonstration purposes).
Results and impact
The Sonic pool reached approximately 43.92% of the targeted TVL. Under the traditional model, all allocated UNI rewards would have been distributed regardless of performance. With Metrom’s KPI-based approach:
- Only 0.9054 UNI out of 2.0615 UNI was distributed based on actual performance.
- 1.156 UNI was saved, highlighting significant efficiency.
Scaled up, this approach could have saved approximately 115.6 UNI tokens in just one week, showcasing substantial cost efficiency and sustainability for the DAO.
Refer this spreadsheet for campaign performance, TVL progress, and detailed reports for further reference. In the chart below, the green columns are the KPI measurements reached and the dark grey is the total recoverable incentives that didn’t meet the KPI. The pie chart denotes how much of the incentives are distributed vs recoverable.
Why KPI-based rewards make sense
Metrom’s KPI model provides clear advantages:
- Real Liquidity Impact: Rewards proportionally tied to achieving actual liquidity goals.
- Proportional Scaling: Rewards increase as the pool’s liquidity grows toward the set target.
- Sustainable Token Usage: Unused tokens remain available for future campaigns.
- Clear Community Goals: Tangible TVL targets encourage unified community effort and strategic liquidity provisioning.
Exploring alternate incentive configurations
Metrom also evaluated alternative incentive configurations to further demonstrate flexibility:
50% KPI + 50% blanket distribution:
- Half the rewards guaranteed; half KPI-based.
- Ensures baseline rewards but reduces total savings if KPIs aren’t met.
Calculations:
Result: Provided baseline incentives with some KPI-driven efficiency.
Savings: 57.8 UNI from the original distribution.
Floor of $1M TVL with 50% KPI + 50% blanket distribution
A floor is set at 1M TVL where 50% of the rewards are paid regardless. Beyond that, rewards scale with KPI progress.
This configuration provides a safety net, paying guaranteed rewards up to a TVL floor (e.g., $1M), with additional KPI-driven rewards as the pool exceeds this floor.
Calculations:
Result: This incentivizes LPs to maintain baseline liquidity while motivating efforts to exceed minimum targets for unlocking higher rewards.
Savings: Approximately 83.92 UNI.
Real-time reward calculation
Metrom’s system calculates incentives by:
- Taking minute-by-minute TVL snapshots.
- Computing the average TVL every 5 minutes.
- Assigning rewards every hour based on these precise measurements, ensuring fairness and accurate reward distribution.
Benefits demonstrated by the Sonic campaign
Our Sonic campaign highlighted significant benefits:
- Reduction in Mercenary Capital: Encouraged meaningful, long-term liquidity contribution.
- Prevention of APR Leakage: Ensured sustainable and predictable APRs (e.g., targeted 15%) by adjusting emissions based on performance.
- Transparent Incentivization: Clear communication of TVL targets fostered community collaboration.
A superior approach to liquidity incentives
Metrom’s KPI-based liquidity mining provides a more efficient, sustainable, and strategically aligned method for managing incentives compared to traditional flat-distribution models.
Our demonstration on Sonic confirms significant potential savings in emissions directly benefiting protocols like Uniswap.
Join the discussion: How can KPIs shape the future of liquidity mining? Share your thoughts on Uniswap RFC.