Defi gets a boost from the emergence of a number of new blockchains such as Berachain, Ton, Plume, Sonic and many others. Each new chain brings a flood of incentives that lure users with yields that repeat the early days of yield breeding in 2021.
But are any of this sustainable? As each new blockchain struggles to build speed, they inevitably confront the same dilemma: how to build sustainable ecosystems that survive beyond the end of their incentive programs.
Incentive remains one of Crypto’s most powerful bootstrapping tools-a elegant solution to the cold starting problem of attracting users and liquidity. Still, incentives are just a starting point. The ultimate goal is to build self-supporting economic activity around defi-protocols.
While the broader defic market has evolved significantly, the basic approach to incentive-driven growth has changed slightly. In order for defi to thrive in this new phase, these strategies must be adapted to reflect the realities of today’s capital dynamics.
Despite the obvious need, most incentive programs end up failing or producing undergoing results. The composition of the current defi market is very different from 2021, where it was relatively simple to run an incentive program. The market has changed and there are some key aspects to consider when thinking about capital formation in defi.
More blockchains than relevant protocols
In traditional software ecosystems, platforms (LAG-1s) typically give rise to a larger, different set of applications (LAG-2s and beyond). But in today’s Defi landscape, this dynamic is flipped. Dozens of new blockchains – including movement, Berachain, SEI, Monad (upcoming) and more – are launched or preparing for. And yet, the number of defi -protocols that have achieved real traction remains limited to a few prominent names such as ether.Fi, Kamino and commute. The result? A fragmented landscape where Blockchains shrinks on board the same small pool of successful protocols.
No new degens in this cycle
Despite the spread of chains, the number of active defi investors has not kept pace. Users experience friction, complex financial mechanics and poor wallet/exchange distribution all have limited onboarding of new participants. As a friend of mine likes to say, “We haven’t characterized many new ones this cycle.” The result is a fragmented capital base that is constantly pursuing to give over ecosystems instead of running deep commitment to someone.
Tvl fragmentation
This capital fragmentation now plays out in Tvl (total value locked) statistics. With several chains and protocols chasing the same limited pool of users and capital, we see dilution rather than growth. Ideally, capital inflow should grow faster than the number of protocols and blockchains. Without this, capital simply spreads thinner and undermines the potential effect of any individual ecosystem.
Institutional interest, retail rails
Retail can dominate the defi -narrative, but in practice institutions operate most of the volume and liquidity. Ironically, many new blockchain ecosystems are poorly equipped to support institutional capital due to lack of integrations, lack of custody and underdeveloped infrastructure. Without institutional rails, the attraction of meaningful liquidity becomes a steep uphill.
Incentive efficiency and market connections
It is common to see new defi protocols launch with poorly configured markets, including leading to pool balances, sliding problems or inconsistent incentives. These inefficiencies often result in campaigns that disproportionately benefit insiders and whales, leaving a little behind in terms of long -term value creation.
Building in addition to incentives
The holy grail of incentive programs is to catalyze organic activity that continues after the reward dries up. Although there is no plan for guaranteed success, several basic elements can increase the odds of building a durable defi ecosystem.
Real ecosystem tool
The hardest but most important goal is to build ecosystems with real, non-economic tools. Chains such as Ton, Unichain and Hyperliquid are early examples where the token tool extends beyond pure yield. Still, most new blockchains lack this kind of basic tool and have to rely on incentives to attract attention.
Strong stableCOin base
Stableecoins are the cornerstone of any functional defi economy. An effective approach often includes two leading stableecoins that anchor borrowing markets and creates Deep Amm (automated market manufacturer) liquidity. Designing the right stableecoin mix is critical for unlocking early lending and trading activity.
Greater active liquidity
Next to stableecoins lowers deep liquidity in blue-chip assets such as BTC and ETH friction for large allocation. This liquidity is crucial to boarding institutional capital and enabling capital-efficient defi strategies.
Dex liquidity depth
Liquidity in AMM pools is often overlooked. But in practice, sliding risk can derive large trades and stifle activity. Building deep, elastic DEX liquidity is a prerequisite for any serious defi ecosystem.
Lending market infrastructure
Lending is a basic defi primitive. A deep borrowing market – especially for stableecoins – unlocks the potential for a wide range of organic financial strategies. Robust lending markets naturally complement DEX liquidity and increase capital efficiency.
Institutional custody
Business infrastructure such as Fireblocks or Bitgo has much of the institutional capital in crypto. Without direct integration, capital allocators are effectively locked out of new ecosystems. Although it is often overlooked, this is a critical port factor for institutional participation.
Bridge infrastructure
Interoperability is important in today’s fragmented defi world. Bridges like Layerzero, Axelar and Wormhole act as critical infrastructure for transferring value across chains. Ecosystems with trouble -free bridge support are far better placed to attract and retain capital.
The intangible
In addition to infrastructure, there are subtle but critical factors that affect success. Integrations with top oracles, the presence of experienced market manufacturers and the ability to aboard Marquee -Defi protocols help everyone bootstrap a flowering ecosystem. These intangible elements often produce or break new chains.
Sustainable capital formation in defi
Most incentive programs do not deliver their original promise. Over optimism, incorrectly adjusted incentives and fragmented capital are common guilty. It is no surprise that new programs often draw skepticism and accusations of enriching insiders. Still, incentives remain important. Once designed well, the powerful tools for bootstrap ecosystems and create lasting value.
What separates successful ecosystems is not the size of their incentive programs – that’s what comes next. A solid foundation of stableecoins, deep amm and lending of liquidity, institutional access and well -developed user streams are the building blocks for sustainable growth. Incitaments are not the end game. They are just the beginning. And in today’s defi, there is definitely life beyond incentive farming.
