As competition across DeFi networks intensifies, securing Total Value Locked (TVL) and active users remains a critical focus. One of the most common strategies used by emerging and established networks alike is launching grant incentive programs designed to bootstrap ecosystem activity, drive volume, and build early traction.
However, while nearly every network today has either launched or is planning some form of grant initiative, few have built truly sustainable programs that retain TVL after incentives run out. Treasury depletion, token inflation, and user attrition remain persistent risks.
To better understand how grant programs can succeed — and where they often fail — Serious People (SP) conducted an analysis of various incentive programs across the space. This study draws from that research and presents clear strategies for designing programs that drive lasting value.
Grant programs are expensive and resource-intensive initiatives. To even begin, a network must establish critical infrastructure — such as DEXs, subgraphs, and essential tooling — to support new projects. It must also assemble specialized teams for business development, due diligence, financial oversight, and operational support. On top of this, clear KPIs must be set from the outset to monitor effectiveness and refine future grant cycles.
Most grant incentives are paid out in the network’s native token, placing strain on treasury reserves, inflating circulating supply, and increasing sell pressure. If the token economy is not carefully managed alongside grant dispersals, the program risks weakening the very foundation it was designed to strengthen.
Despite these challenges, many networks proceed through all these steps — only to see a temporary boost in TVL and user activity that vanishes once incentives dry up. Without sustainable mechanisms to retain value, funds migrate elsewhere in search of the next incentive program, leaving behind depleted treasuries, weakened token prices, and lost momentum.
A clear example of these common pitfalls can be seen in Arbitrum’s STIP program. Like many grant models in DeFi, STIP centered primarily around liquidity mining — rewarding users for staking or farming, rather than building deeper alignment with the network. The structure of the program can be summarized as follows:
Arbitrum’s Short-Term Incentive Program (STIP) offers a valuable case study because of:
Its significant scale ($72M+ in $ARB rewards)
Transparent documentation and reporting
Multiple program iterations, allowing comparison over time
The STIP was designed to amplify usage, liquidity, and TVL across the Arbitrum ecosystem by distributing incentives to 70+ projects. Thanks to the volume of participants and the single-token funding source, it created a clear dataset to evaluate impact.
The most important metric Serious People uses is called Return-On-Emissions (ROE).
ROE = the dollar value that is returned to a protocol for every dollar of their token that they emit.
“Value” can come in many different forms; user acquisition, product adoption, value of liquidity built, etc. For this particular study SP compared each program by its TVL acquired, both at the peak and maintained post program.
Thanks to great adoption on the network, the STIP did well in amplifying the volume, TVL, and user base of Arbitrum while funds were being dispersed. Upon completion however, these gains quickly diminished, resulting in the projects forming a coalition to come back to the DAO asking for a refill on their incentives. With lots of data pulled from Openblock Labs but nobody hired to analyze the efficacy of the program to determine success, Serious People decided to take on this task.
Looking at the majority of programs from the STIP, SP began to notice trends in how protocols were using the funds. Many used some form of farming or staking to incentivize users to hold their LPs, their tokens, or to drive volume to their platform. When looking into these programs more closely, they can almost all be summed up as rental programs.
Rental, in this case, means that a certain allocation of ARB incentives are used to convince users to stake their assets to earn rewards. The problem with these programs is that when the rewards are coming to an end, stakers simply take back their assets, liquidate their rewards, and migrate their funds to the next program. SP calls these “Mercenary Miners''. For this reason most of the value from this program on was extracted by mercenary miners and migrated to other chains.
The chart below does a good job of displaying these effects. SP sectioned off 9 projects that were using most of their incentives to grow their LP. These projects were averaged together to form the brown trend line. As you can see, from day 1 the TVL immediately shot up and sustained for the duration of the program. This grant program was run for 90 days. As can be seen, after the program completed, TVL quickly fell below the starting point. Thus, the program actually led to a net loss in TVL.
Additionally, The largest beneficiaries of these grant programs are not the protocols or the network but a small number of whales with big enough bags to out-farm everyone else. For the initial program with 50 protocols, and 67,329+ wallets participating, over 50% of the total rewards ended up in the hands of the top 0.24% of wallets (164 in total).
This means that 164 wallets claimed 25M arb worth $45.6M (at the time). In fact, the top 1%, 672 wallets, claimed 72% of the rewards. After claiming their rewards if there are no more incentives to farm, those same whales have no reason to stick around and tend to migrate to the next opportunity for yield. Unfortunately, their next source of yield is often on a different chain that just started another program. The ROE for the Arbitrum DAO was near zero. Even more, since at the end TVL fell below the starting point, this program had an overall negative effect on the network.
Because of the temporary nature of this program, the second that the STIP ended the protocols that received rewards needed to be refilled. Arbitrum passed a follow up program to extend the STIP further and fund it with another 37.5M $ARB, valued around $50M (at the time of the re-up).
Now this is not to say that there is no hope or that these programs cannot work. One project that received the STIP used their emissions in a unique way and it reflected in their results. Here is what happened to the TVL with Savvy.
As can be seen from the chart, Savvy’s TVL did not have quick explosive growth like the others did. Instead it was able to maintain value after the program ended. While this result may not be able to match peak TVL of some of the rental programs, what it did was maintain value after the program ended. How did Savvy achieve this long term and sustainable success?
Savvy used their incentives to build Protocol-Owned-Liquidity (POL) for their token using an emissions mechanism known as a Vested Emissions Offering (VEO). VEO’s leverage a bonding curve to sell discounted tokens that vest to the purchaser. While bonding curve’s have proven to be highly effective in DeFi, this was the first time they had been used to achieve POL through a grant program in this way. This insight, along with the particular high return on emissions achieved on the hundreds of millions of dollars that have been emitted via bonding curves in web3 so far, has made it clear that it is time to increase the awareness of VEOs as a token distribution method in general, and for grant programs especially.
Avoid rental farming programs as the primary use of blockchain incentives. They attract mercenary users, not long-term value.
Leverage Vested Emission Offerings (VEOs) to create permanent liquidity, align incentives, and anchor TVL within the ecosystem.
Establish clear KPIs and feedback loops to measure program efficacy and guide future grants based on real performance data.
By using VEOs within incentive programs, networks can significantly enhance capital efficiency:
Grow TVL during the program
Retain TVL after incentives end
Improve ROE dramatically (upwards of 90%+)
Recycle capital into future programs through accumulated treasury assets
In contrast, networks relying solely on traditional farming incentives risk spending tens of millions of dollars for little or no lasting ecosystem growth.
Serious People proposes a sustainable framework built around VEOs:
Instead of issuing temporary rewards for staking, users exchange LPs directly for discounted tokens.
The protocol (or network) acquires yield-bearing assets, strengthening its treasury.
Over time, the network’s treasury grows, emissions decrease, and future programs can be self-sustaining.
Rather than depleting reserves, networks using this model create a flywheel — attracting liquidity, retaining value, and compounding growth across incentive cycles. Below is an example of how we could leverage VEOs as part of an existing grant program.
With one small tweak to the way that the emissions are used and adding a simple cyclical reviewal process, this program goes from a value destructive cycle to a sustainable flywheel, bringing in value from users and maintaining it.
We can fit the VEO mechanic into existing grant programs, new incentive initiatives, or structure it specifically for the blockchain itself to build chain owned liquidity! The possibilities are endless. Reach out to Serious People today to see how we can help you skyrocket your ROE!