The Efficacy of Token Incentive Models

Token incentives have emerged as a catalyst for protocol growth since the DeFi summer of 2020. Unlike traditional methods of acquiring capital, crypto protocols have found a direct approach by rewarding users with protocol tokens for specific actions. These carefully designed token incentive models aim to align users with long-term protocol growth, attract new participants, and gradually decentralize token governance. However, the outcomes of various token experiments have varied significantly, from ineffective to transformative. This report explores case studies within three broad classes of token incentive models – one-time airdrops, ongoing rewards, and campaign models – to assess their viability, trade-offs, and sustainability.