# From PvP to WAGMI, why LP incentives matter

**Published by:** [kompreni](https://paragraph.com/@kompreni/)
**Published on:** 2025-01-13
**Categories:** tokens, lp, rebase
**URL:** https://paragraph.com/@kompreni/lp-incentives

## Content

If you've been around tokens long enough, you've probably heard the term LP incentives. What are LP incentives? LP incentives are rewards that you issue to market makers. Market makers (for crypto and non-crypto markets alike) enable more folks to buy and sell by providing deeper market liquidity. Market making is an important part of any market. It allows traders, particularly those trading with size, to participate. Whales do not want to trade an illiquid token. If the market can't handle their typical 5, 6, or 7-figure order (i.e. it moves the market too much), they simply won't participate. More liquidity also protects against the massive dump risk from early / large holders:Any of these holders could crash the price of an early-stage tokenWhat is dump risk? As the name suggests, it's the risk that major holders (often early buyers) dump their coins on the market. Their massive bags are capable of crashing it by more than 10% in a single trade. LP incentives solve dump risk in two related ways:They incentivize more market makers, and therefore more liquidityWould-be sellers instead become market makers to earn yield.Let's break each of these down. In crypto, yield is everywhere. Even ETH holders want to know much yield they can earn staking ETH. Generally, yield is quantified as a percentage of the value of your staked assets, on an annualized basis. So if you can stake 100 ETH and earn 5 ETH over the course of a year, your APY is 5%. Markets have yield, too. Their yield comes in two flavors: trading fees and LP incentives. Both require you to be a market maker, which Uniswap supports outs of the box:Market making on UniswapTrading fees are the fees market makers earn when people (🥁 drum roll...) trade. On most Uniswap transactions, the fee is 1%. Uniswap already provides a way for market makers to claim these fees natively, so we won't go into that here. Just note that it is one way to earn yield. LP incentives are another powerful way to earn yield. Projects can allocate tokens to market makers, who earn tokens proportional to how much liquidity they provide on Uniswap. LP incentives are not baked into Uniswap; this is where Rebase steps up.LP incentives at work on Rebase. APY on the rightRebase lets any token project create LP incentives, paid in the token of the project. In the screenshot above, $PROXY is being paid to market makers. These market makers, who provide $PROXY and ETH liquidity on Uniswap, are earning 120% yield in $PROXY. The larger the LP incentives (the more tokens offered), the more attractive it is to be a market maker. In addition to bolstering liquidity, LP incentives mature the market for the better. Early whales have an opportunity to step up and put their bags to use. Whereas before they'd hope to "buy low, sell high" (very PVP), they can become longer-term participants, aligned through yield:Originally, Rebase only allowed project creators to fund the LP incentives. This would require project creators to carve tokens out of their own personal allocations. We are excited to announce that is no longer necessary. Now, anyone can crowdfund LP incentives for a project at rebase.finance/crowdpools Why would a bagholder contribute to the LP incentives? One way of summarizing the "why" is as follows:Would you commit 5% of your bag to a program that could 5x the market? In short, LP incentives are a powerful tool to bring in new participants by expanding the liquidity of a token. They also give existing holders a way to put their bags to work. Hopefully this brief overview has shed some light. If you have any questions dm @kompreni or post in /rebase on the purple app.

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