DeFi Service Incentive Scheme

In most cases, the mechanisms to gain revenue from DeFi services are explained clearly to show transparency and reassure the institutions and investors who invest in the DeFi ecosystem. Additionally, the liquidity provided from these investors can also be used to gain returns in different ways, which can be categorized as follows:

Liquidity providing

This is the return gained from Lock-up yield, characterized by the payment of interest or the distribution of trading fees from providing liquidity to the market. This also includes providing funds as collateral in various services.

Yield farming

This is the return gaining from Liquidity Mining that pays interest as tokens issued by the service providers. These tokens will be mainly in governance tokens that investors can sell or use to vote for some service changes in a protocol.

Airdrops

This is the return gaining in the form of tokens paid to the investors via wallet address. Investors may need to register or participate in some events in order to be qualified and receive these tokens. The token giveaway may be used for promotional purposes or raising public awareness.

Yield aggregator

Under some conditions, this yield management service gains returns from Liquidity Mining and Lock-up yield, which can be distributed to different services automatically.

Liquidation fee

This is the return for being a market-maker when digital assets get liquidated in the event of a loan under collateral.

Although there are different ways to gain returns and their terms are specified in the smart contract, exaggerated high returns without sustainability can lead to inaccurate long-term expectations for investors.