Emissions Allocation for Liquidity Incentives: Case Studies and Considerations

Introduction

Regen Network is evaluating whether to allocate 33% of its token emissions to incentivize liquidity provision (initially on the Aerodrome DEX). Currently, 98% of $REGEN emissions reward validators (stakers) and 2% go to the community pool. Shifting a substantial portion to liquidity incentives is a significant change that can impact the token’s economics and ecosystem. To inform this decision, it’s crucial to examine how other blockchain projects have handled liquidity mining incentives – what percentage of emissions they dedicated to liquidity providers, and what outcomes they saw over time. This report presents case studies from a range of networks (Osmosis, Uniswap, THORChain, and others) and analyzes their approaches. Key metrics such as liquidity depth (TVL), token price changes, and ecosystem impacts (trading volume, volatility, TVL changes) are highlighted over a 3–12 month period following incentive programs. The report then outlines a framework of considerations for deciding how much of a chain’s emissions to allocate to liquidity incentives, including potential benefits (deeper liquidity, better price discovery) and risks (mercenary capital, sell pressure, reduced staking security).

Case Studies of Liquidity Incentive Allocations

Osmosis (Cosmos DEX – OSMO)

Osmosis is a Cosmos-based DEX chain that launched in 2021 with an aggressive liquidity mining program. Osmosis initially allocated 45% of new token emissions as liquidity mining rewards for LPs , while 25% went to staking rewards and the remainder to developers and community pool. These incentives were paid to liquidity providers of approved pools (e.g. OSMO/ATOM, OSMO/stablecoins) who bonded their LP tokens for defined periods (1-14 days). The goal was to bootstrap deep liquidity for Cosmos ecosystem trading. The impact was dramatic – Osmosis’s total value locked (TVL) climbed from launch to about $1.8 billion within 9 months (by March 2022) . This deep liquidity supported significant trading activity (over $17 billion in volume in Osmosis’s first year) and improved price stability for traded tokens by reducing slippage . Osmosis’s native token OSMO also initially rose in price amid the DeFi boom (peaking around $11.25 in March 2022). However, the combination of high inflation and the broader bear market saw OSMO’s price later decline over 97% from its all-time high . The large ongoing token emissions created sell pressure as yield farmers earned and sold OSMO rewards, which contributed to this price drop once overall demand cooled. By late 2022, after the collapse of Terra (one of Osmosis’s top trading assets) and market downturn, Osmosis’s TVL had fallen below $100 million  (a sharp contraction from its peak – see figure).

Osmosis’s liquidity mining program successfully bootstrapped deep liquidity, but high token emissions introduced inflationary pressure. In 2023, Osmosis began adjusting its tokenomics to favor stakers more and reduce liquidity reward percentages . The community recognized that 45% to LPs was unsustainable long-term, as it diluted the token significantly. Governance proposals were passed to lengthen the emission schedule and reduce the LP rewards (one proposal in April 2023 adjusted the emission ratio between staking and LP incentives)  . By mid-2023, Osmosis documentation noted that “up to 20%” of inflation may be allocated to liquidity incentives  – a reduction from the initial 45%. The shift toward a lower percentage was coupled with features like “superfluid staking,” allowing a portion of OSMO in liquidity pools to also count toward staking . This hybrid approach aimed to maintain security (by not starving validators of rewards) while still supporting pool liquidity. Osmosis’s experience illustrates that while a high emission allocation (40%+ range) can jump-start liquidity and trading activity, it also risks significant mercenary capital influx and later price volatility if those emissions aren’t scaled back. The project is now moving from an “incentives-driven DEX” to a “volume-focused DEX” with more conservative liquidity rewards .


Figure: Osmosis DEX total liquidity (TVL) in USD, showing rapid growth in 2021 (peaking ~$1.8 B in early 2022) and a sharp decline by late 2022 as market conditions and reduced incentives took effect . High initial liquidity incentives boosted TVL but proved hard to sustain once external demand fell.

Uniswap (Ethereum DEX – UNI)

Uniswap, the largest Ethereum DEX, provides a contrast with a short-term liquidity mining program rather than ongoing high emissions. Uniswap’s UNI token was introduced in September 2020 with an initial liquidity mining program that distributed 20 million UNI over 2 months (Sept 18 – Nov 17, 2020) . This amounted to about 2% of UNI’s total supply allocated as LP rewards for four major pools (ETH paired with DAI, USDC, USDT, WBTC). During this incentive period, Uniswap’s liquidity surged from roughly $500 million TVL to over $3 billion – a 6× increase . The program successfully attracted liquidity back to Uniswap after a competitor (SushiSwap) had siphoned funds in a “vampire attack.” However, the incentives were time-limited. When UNI rewards ended in November 2020, Uniswap’s TVL dropped about 43% in a day (from ~$3.07 B to ~$1.75 B)  as some liquidity providers withdrew (see figure). Importantly, even after this drop, liquidity remained higher than before the program (Uniswap retained ~$1.7 B vs. ~$0.5 B pre-incentive), indicating a net gain in baseline liquidity . In other words, the short mining campaign wasn’t entirely “sticky” in the immediate term (since a large portion of liquidity was mercenary and left when rewards stopped), but it did increase Uniswap’s market presence and kept a portion of liquidity that might not have been there otherwise .

Uniswap’s UNI distribution had mixed effects on token price in the short run. UNI’s price initially spiked when the program began (driven by excitement and demand for UNI), then fell steadily during the two-month reward period as farmers received UNI and likely sold portions of it . This suggests typical sell pressure from liquidity mining – many LPs treated the reward as yield to cash out. After the program, UNI’s price and Uniswap’s usage continued to grow organically, especially with the DeFi bull market of 2021 (UNI reached new highs around $40 in May 2021, long after the initial incentives ended). Uniswap did not continuously allocate a fixed percentage of ongoing emissions to LPs – in fact, after the initial 20M UNI, no further UNI was emitted until governance decided otherwise (UNI has a fixed supply schedule with a community treasury). The community debated extending or renewing liquidity mining at a lower rate: a proposal in late 2020 suggested continuing incentives at half the rate (10M UNI over another 2 months, ~4.6% of circulating supply) , to taper the impact. This indicates that finding the “right” level was an active governance question – too little, and liquidity might flee to yield elsewhere; too much, and the cost (in token dilution) might outweigh the benefits. Ultimately, Uniswap relied less on continual liquidity rewards (especially after launching Uniswap v3 which uses concentrated liquidity without native token incentives) and more on its first-mover advantage and protocol fees (though Uniswap fees currently go to LPs, not UNI holders). The Uniswap case shows that even a relatively small, temporary allocation (2% of supply) can strongly boost liquidity and volume in the short term , but sustaining that liquidity may require either extending incentives or accepting a partial pullback once rewards stop. It also highlights how mercenary capital quickly moves – Uniswap’s loss of 40%+ TVL immediately after rewards ended underscores the risk that LPs will chase the next high-yield opportunity  . On the positive side, Uniswap’s brief program appears to have increased overall awareness and usage of the platform, as liquidity levels after the incentives remained higher than before, and trading volume continued growing .

_Chart Missing_

Figure: Uniswap V2 Total Value Locked (USD) in 2020. The liquidity mining program (mid-Sep to mid-Nov 2020) caused TVL to surge from <$300M to over $3B. When UNI rewards expired on Nov 17, TVL dropped sharply (~40% in one day) to around $1.7B , still higher than pre-incentive levels. This illustrates the influx of liquidity with incentives and the partial outflow once incentives ended.

THORChain (Cross-Chain Liquidity – RUNE)

THORChain is a cross-chain liquidity protocol (AMM for assets like BTC, ETH, etc.) that uses its token RUNE as the settlement asset in every pool. THORChain’s approach to incentives is unique due to its Incentive Pendulum mechanism, which dynamically balances rewards between node operators (validators) and liquidity providers. Roughly 50% of RUNE block rewards go to liquidity providers and 50% to node validators at equilibrium . If the network is “under-bonded” (not enough RUNE staked by nodes relative to RUNE in liquidity pools), the pendulum shifts to give a larger share to nodes (in extreme cases, two-thirds to nodes and one-third to LPs) to incentivize more bonding. Conversely, if the network is over-bonded, more rewards shift to LPs until the ratio balances . In practice, this meant THORChain targeted about 33% of emissions to liquidity incentives on the low end (when more incentive was needed for nodes) up to 50% in periods of balance or if liquidity needed a boost .

The result of THORChain’s incentive design was the development of deep cross-chain liquidity pools paired with RUNE. For example, as of August 2022 (several months after THORChain’s mainnet launch and restart), the protocol had a BTC pool with ~$22 million depth and an ETH pool with ~$15 million , alongside other asset pools. These pools enable on-chain swaps between native L1 assets (BTC, ETH, BNB, etc.) via RUNE, and the depth indicates relatively robust liquidity for a cross-chain AMM. Over the first year of multi-chain operation (2021–2022), RUNE incentives helped attract hundreds of millions in total liquidity, although THORChain’s TVL and volumes have fluctuated with the broader market and some security incidents (exploits in 2021 temporarily paused the network). In terms of token price, RUNE experienced significant volatility. It rose from a few dollars to around $20 at its peak during the 2021 crypto bull market, then fell sharply during the 2022 bear market. By late 2022, RUNE was about 93–94% below its all-time high , similar to many incentive-heavy DeFi tokens. The sustained emissions to both LPs and nodes (combined with market downturn) contributed to this decline. However, THORChain’s design ensured that at least half of emissions always went to securing the network (nodes), which maintained a high bonded stake. This was crucial because THORChain’s security model requires a large amount of RUNE to be bonded by nodes (2x the amount in pools) to make economic attacks expensive . The balance between liquidity and security is automatically managed by the protocol – effectively a self-adjusting emissions allocation. The outcome is that THORChain has generally been able to keep pools functional and relatively deep, albeit at the cost of high token inflation. The trade-off here leaned toward ecosystem growth (facilitating cross-chain swaps with decent liquidity) while accepting the risk of mercenary liquidity and token dilution. In THORChain’s case, many LPs are also long-term believers in the project (and often also node operators), which may have somewhat reduced pure mercenary behavior. The dynamic incentive model is a notable strategy to optimize emissions percentage over time rather than fixing it permanently – it suggests that the “right” percentage can change depending on network conditions (security vs liquidity needs).

Other Protocol Examples

In addition to the above, it’s informative to look at a couple of other protocols with different approaches to liquidity incentives:

SushiSwap (Ethereum DEX – SUSHI): SushiSwap famously began as a fork of Uniswap in late August 2020, attempting a vampire attack by offering extremely high rewards to LPs. In Sushi’s launch, effectively the vast majority of SUSHI token emissions (≈90%+) went to liquidity providers (with a small portion earmarked for the dev fund) – essentially a hyper-aggressive liquidity mining approach. This led to SushiSwap amassing over $1 billion TVL within days of launch , as Uniswap LPs migrated to farm SUSHI. However, this came at the cost of intense sell pressure on SUSHI. In early September 2020, the anonymous founder “Chef Nomi” cashed out a chunk of dev funds, causing panic – SUSHI’s price crashed by over 50% in one day  and SushiSwap’s TVL temporarily plunged (from ~$1.8B down to $600M within a week) . The project was rescued by community intervention and continued incentives under new leadership. Over the next 3–6 months, SushiSwap actually grew again (peaking around $5B TVL in 2021 as DeFi boomed), but it had to continually issue SUSHI rewards to compete with other platforms. By late 2021, SUSHI’s token had reached highs around $20, yet by 2022 it retraced heavily. Today SUSHI trades about **97% below its all-time high ($23)** , reflecting how prolonged high emissions can suppress price. SushiSwap did introduce mechanisms like xSUSHI (staking SUSHI to earn a share of protocol fees) to encourage holding, but its core liquidity mining remained inflationary. The SushiSwap case exemplifies “mercenary capital”: high incentives drew in lots of liquidity very quickly, but much of it was short-term and the token’s value suffered from continuous sell-offs. It underscores that allocating an extremely large percentage of emissions (near 100% in this case early on) to liquidity incentives can indeed bootstrip liquidity rapidly, but is hard to sustain and can lead to high volatility and community turmoil if not managed carefully.

Curve Finance (Stablecoin DEX – CRV): Curve took a different approach – it also distributes a majority of token emissions to liquidity providers, but it introduced a long-term alignment mechanism. Virtually 100% of CRV emissions fund Curve’s liquidity pool rewards via a gauge system, but LPs are encouraged to lock their CRV tokens (as veCRV) for up to 4 years to boost their rewards and voting power. This vote-escrow model means many liquidity miners become long-term stakeholders, mitigating immediate sell pressure. In practice, Curve’s annual token inflation was very high in its early years (initially over Curve’s tokenomics originally targeted a high inflation, over 750M CRV in the first year, which was about a 80-100% increase of circulating supply, though much of it was time-locked). This helped Curve grow to dominate stablecoin liquidity, reaching over $10–15 billion TVL at its peak in late 2021. The ample rewards ensured deep liquidity for stablecoin trading with minimal slippage, and Curve often boasted daily volumes near $1B with very low fees. However, CRV’s price remained relatively subdued; it did not appreciate as dramatically as some DeFi tokens during the bull run, partly because of the constant emissions. CRV peaked around ~$6 in 2022 and has since fallen — it is currently about 96% below its all-time high . The positive side is that Curve’s design created a committed group of veCRV holders who essentially took a lot of CRV off the market (locked for long durations), offsetting some sell pressure in exchange for governance rights and boosted yields. More recently (by its 4th anniversary in 2024), Curve has begun reducing its inflation rate – cutting annual CRV emissions from ~20% to ~6% and ending vesting schedules  – reflecting a shift from growth phase to sustainability. The lesson from Curve is that heavy liquidity incentives can be paired with mechanisms to encourage loyalty (e.g. locking, governance rewards). This can achieve the goal of deep liquidity while lessening (though not eliminating) the problem of mercenary capital. Even so, Curve eventually recognized the need to taper emissions as the ecosystem matures, aligning with a common trend: start high to bootstrap, then gradually lower the inflation dedicated to liquidity.

Comparative Overview of Emissions Allocations and Outcomes

The table below summarizes how various chains/protocols allocated token emissions to liquidity incentives and the outcomes observed over a 3–12 month period. This comparative view highlights the diversity of approaches – from none or short-term programs to sustained high emissions – and their trade-offs:


(Sources: Protocol documentation and reports; see referenced links)

Analyzing Outcomes: Liquidity Depth vs. Price Impact

The case studies above reveal some clear patterns:
• Deeper Liquidity and Trading Volume: In almost every case, dedicating a portion of emissions to liquidity incentives succeeded in rapidly increasing liquidity depth. Osmosis and Uniswap saw multi-fold TVL increases during their liquidity mining periods  . With deeper pools (especially when paired with popular assets like stablecoins or ETH/ATOM), trading volume typically rose as well. For example, Osmosis processed $17.6B in volume in its first year alongside its high LP rewards , and Uniswap’s volume hit new highs during and after its incentive program as it recaptured market share. Deeper liquidity leads to better price discovery and lower slippage, attracting more traders and arbitrageurs. In Thorchain’s case, sufficient liquidity in each pool allowed it to offer cross-chain swaps with reasonable efficiency, something that wouldn’t be possible if pools were shallow. Thus, one benefit of allocating emissions to liquidity is clearly demonstrated: it can bootstrap an ecosystem’s TVL and usage quickly, which can be critical for new or small-cap projects seeking adoption.
• Token Price Volatility and Sell Pressure: A common downside was increased sell pressure on the native token. When a large fraction of emissions is paid out to LPs, many recipients will sell those tokens to realize yield. This was observed in UNI (during the two-month mining, UNI’s price drifted down as rewards were claimed and sold) . OSMO and SUSHI also suffered prolonged price declines as continuous high emissions created a constant stream of tokens hitting the market. Even if the project fundamentals are strong, high inflation can dampen the token’s price. In our examples, peak-to-trough declines of 90%+ were seen in OSMO, RUNE, SUSHI, and CRV within 1-2 years of initiating aggressive liquidity rewards    . While broader crypto market conditions played a big role (2022 bear market), the large circulating supply increases undoubtedly contributed. Mercenary capital exacerbates this: liquidity miners often chase high APY, then dump the rewards and move on when yields drop. This behavior can leave the token undervalued and highly volatile. It can also lead to dramatic liquidity swings – as seen when Uniswap’s incentives ended and liquidity quickly exited , or when SushiSwap’s founder pulled funds and much of the TVL vanished overnight .
• Ecosystem Effects (Security, Participation, “Stickiness”): Allocating emissions to LP incentives means those tokens are not going to other purposes like staking yields, development funds, or community grants. There is an opportunity cost. Osmosis discovered that giving 45% to LPs and only 25% to stakers made staking APRs relatively low, which could deter validators or reduce security over time . Regen (as a Cosmos chain) must consider that if it diverts a large share from validators to LPs, the staking yield will drop, potentially lowering the staking ratio or prompting some validators/delegators to leave for more profitable networks. Thorchain’s approach tries to counter this by dynamically adjusting the split to maintain security; others like Osmosis simply decided to increase the staking share to ensure enough incentive for validators . On the flip side, liquidity incentives can broaden participation in the ecosystem – they attract not just stakers but also DeFi users, arbitrageurs, and yield farmers, which can bootstrap a user base. The key question is whether those users stick around. In Uniswap’s case, some did (baseline liquidity improved) , but a good portion did not. Protocols have innovated to increase stickiness: e.g., longer reward vesting or bonding periods (Osmosis required 7-14 day bonding to get full rewards, reducing immediate dumping), governance locks (Curve’s veCRV encourages multi-year commitment), or dual incentives (projects pairing their token rewards with the DEX’s rewards to amplify yields, aiming to keep TVL high). These measures can make liquidity mining more than just a mercenary yield grab and turn a portion of LPs into longer-term stakeholders.
• Impermanent Loss and Pair Selection: An indirect consideration is that incentivizing a pool means LPs are taking on exposure to both assets in the pair. Often the pool is between the native token and a stable asset (e.g., REGEN/USDC) or native token and a major asset (REGEN/ATOM). Deep liquidity in a stablecoin pool can stabilize the token’s price (because large trades won’t move it as much relative to USD), but LPs in that pool are essentially long the native token (if REGEN falls a lot, LPs suffer impermanent loss in USD terms). If incentives are high, they may compensate for that risk; if the token’s price slides too fast, however, even high APR may not retain LPs. Projects like Thorchain mitigate impermanent loss via protocol design (nodes absorb some volatility risk), but others rely on the market. The choice of which pairs to incentivize is key: e.g., Osmosis only incentivized a limited set of pools considered important . For Regen, incentivizing a REGEN/USDC pool might improve price stability and attract traders, whereas a REGEN/ATOM pool might draw more Cosmos community members. The percentage allocated should be weighed against which pool is prioritized and how much liquidity is needed there for effective trading.

Framework for Deciding Emissions Allocation to Liquidity Incentives

Deciding the “right” percentage of token emissions to dedicate to liquidity incentives requires balancing the benefits of liquidity with the costs of inflation and reduced allocation elsewhere. Below is a set of considerations and steps that Regen (or any chain) can use as a framework:
• 1. Define the Objectives: Clearly articulate what you aim to achieve with liquidity incentives. Is it to increase liquidity depth for the token to reduce volatility and slippage? To attract a certain trading volume or integrate with a specific DEX (like Aerodrome)? Or to boost overall network usage and awareness? The percentage of emissions should be commensurate with these goals. For example, if current liquidity is very thin, a relatively higher allocation might be needed upfront to reach a “critical mass” of liquidity where the market functions well. If the primary goal is improved price stability, incentives might focus on stablecoin pairs and be adjusted until typical trade sizes cause minimal price impact.
• 2. Study Comparable Cases: Look at similar projects (size, stage, use-case) and how they allocated incentives. The case studies in this report offer a guide: DEX-centric chains (like Osmosis) allocated 30–45% initially, whereas general chains without native DEXs often allocate much less or use short programs. For Regen’s context (a Cosmos environmental asset chain), it may not need Osmosis-level incentives since trading is a feature, not the core product. Something in the lower range (e.g. 10–20% of emissions) could be tested, unless a very strong push is desired. Thorchain’s 33% to LPs is an interesting data point because it maintained that while still keeping the network secure . That 33% figure may be on the higher side for a non-DEX chain, but it shows a network can function with one-third of emissions to LPs and two-thirds to validators. Ultimately, no one-size-fits-all number exists, but using others’ percentages as benchmarks can ground the discussion.
• 3. Assess Current and Target Liquidity: How much liquidity (in USD) does the REGEN token have currently on any DEX, and how much would be desirable for healthy trading? For instance, if currently $REGEN has, say, $1M liquidity total and slippage is high, you might target, hypothetically, $5M liquidity. Then estimate what APY (annual percentage yield) would attract that liquidity. If 33% of emissions are, for example, X tokens per month, at current prices that equals $Y per month in rewards. Would $Y/month be enough to incentivize $5M of liquidity? This can be iterated: liquidity providers compare the reward yield with impermanent loss and alternative farming opportunities. If 33% emissions yields, say, a 30% APR on the pool, is that competitive? If it’s far higher than needed, perhaps a smaller allocation would suffice to reach equilibrium. Start with a feasible target depth and back-calculate the reward needed, then see what percentage of emissions that represents.
• 4. Evaluate Impact on Staking Rewards and Security: Any reduction from 98% to validators down to 65% (if 33% goes to LPs) will cut staking APR significantly. Analyze Regen’s staking participation – is it currently high (e.g., >50% of tokens staked) and are validators well-compensated? If yes, they might tolerate some reduction. If not, dropping rewards could risk security (validators might shut down or delegators unstake to chase yield in the LP instead). A possible mitigation is to introduce superfluid staking or dual incentives where staked tokens can also support liquidity, as Osmosis did . If that’s technically complex, at least ensure the staking APR remains competitive with other similar networks; otherwise, you may trade liquidity for security, which could be dangerous. Perhaps start with a lower reallocation (e.g. 10% of emissions to liquidity) and monitor staking participation. Governance can incrementally increase it to 20% or 30% if security remains solid.
• 5. Consider Duration and Tapering: Decide whether this allocation is permanent or time-limited. A common strategy is to front-load incentives (higher percentage in early months, then taper down). For example, allocate 30% for the first 6 months to quickly build liquidity, then plan to reduce to, say, 15% thereafter. This can be baked into the token emission schedule or handled via governance when the time comes. The benefit is that LPs know high rewards won’t last forever, which may attract those who want to farm early but also encourages the protocol to become self-sustaining. Uniswap’s success in retaining some liquidity after a short program suggests that even temporary incentives can have lasting effects . Regen could similarly use the community pool (2% of emissions currently) for a trial liquidity mining program before committing to a long-term 33% allocation – essentially testing the waters. The community pool funds (or a portion of them) could subsidize liquidity for a few months on Aerodrome DEX. The outcomes (how much liquidity comes, how $REGEN price and volume respond) would inform whether dedicating a full 33% of ongoing emissions is worthwhile.
• 6. Mitigate Mercenary Behavior: If a significant emissions allocation is approved, design the incentive program to encourage more stable participation. This can include:
• Requiring bonding/lock-up for liquidity mining rewards (e.g., only LPs who lock their LP tokens for X days get the full reward, which prevents instant withdrawal and dump).
• Tiered rewards where early exit loses some rewards (discourages quick flip).
• Governance rights or airdrops for LPs who stick around: e.g., give loyal LPs some say in governance or bonus rewards from the community pool.
• Collaboration with the DEX: If on Aerodrome (which might have its own token or ve(3,3) model like Velodrome), leverage any dual incentives. Perhaps Aerodrome can also provide incentives (in their token) for the REGEN pool, meaning Regen itself might not need the full 33% to achieve a competitive APR. Shared incentive programs can stretch the effect of each project’s emissions.
• 7. Monitor Key Metrics and Adjust: Once implemented, closely track the liquidity depth, volumes, and price impacts on a monthly basis. If liquidity grows to the desired level and stays, but the price is dropping more than expected, it might indicate over-incentivizing (too much sell pressure relative to organic buy demand). In that case, scaling back the emission percentage could be prudent. Conversely, if liquidity remains inadequate (pool still thin, high slippage) even after allocating, it might mean either increase incentives or that external factors (like overall market interest in the token) are limiting liquidity. Governance should be ready to adjust the percentage up or down. Many networks have made such adjustments: Osmosis governance, for example, voted to adjust staking vs LP reward ratios as conditions changed . Regen can similarly treat the 33% figure not as set in stone, but as a starting point subject to data-driven revision.
• 8. Weigh Risks vs. Benefits Continuously: Always contextualize the decision in current market conditions. In bull markets, liquidity incentives can be very effective (more participants ape into farms, and token prices might hold up due to overall demand). In bear markets, high emissions can be especially brutal on price (as seen with many DeFi tokens in 2022). A flexible policy that can dial incentives down during low-demand periods (to conserve token value) and possibly increase when there’s an opportunity to capture growth can be optimal. The benefit of deeper liquidity (if $REGEN becomes easier to trade without moving the market) must be balanced against the cost of dilution. There is a point of diminishing returns: for instance, moving from $0.5M to $5M liquidity might greatly improve market quality, but going from $5M to $15M might not be as impactful for users yet would require triple the incentives. Hence, calibrate to the level of liquidity that yields clear utility for the ecosystem, and avoid overspending emissions beyond that.

Conclusion

Choosing the right percentage of emissions for liquidity incentives is a strategic decision that hinges on a chain’s priorities and growth stage. Case studies show a spectrum: Osmosis went as high as 45% to dominate DEX liquidity (later dialing back to ~20%), Uniswap used a short 2% burst to good effect, and Thorchain balanced around 33% to LPs to build cross-chain pools while securing its network. The outcomes generally confirm that liquidity mining is a powerful bootstrapping tool – it can rapidly deepen liquidity and increase usage – but it comes with significant trade-offs in token inflation and potential volatility. High emissions to LPs often correlate with heavy token price declines over time, especially if not countered with mechanisms to lock in participants or if not tapered as the protocol matures.

For Regen Network, allocating 33% of emissions to liquidity could indeed jump-start a robust REGEN token market on DEXs (like Aerodrome), improving accessibility and price stability of the token. However, such a high allocation should be approached with caution. It would markedly reduce rewards for validators, so measures to preserve staking appeal (or perhaps implementing dual staking/liquidity incentives) should be considered. It’s also worth asking if 33% is needed, or if a smaller percentage (say 10–20%) could achieve sufficient liquidity when combined with external factors (community enthusiasm, potential co-incentives from the DEX, etc.). A phased or trial approach can provide data to make that determination.

In summary, the decision should be guided by pragmatic experimentation and ongoing governance oversight:
• Start with a reasonable allocation that addresses the current liquidity gap without over-diluting the token.
• Closely monitor the effects on liquidity depth, $REGEN price, trading volume, and staking participation.
• Be ready to adjust the percentage in either direction, aiming for an optimal balance where liquidity is “deep enough” for the ecosystem’s needs but inflation is not excessive.
• Watch out for signs of mercenary farming – if liquidity disappears as soon as rewards are touched, the program may need redesign (longer lockups or lower constant emissions in favor of periodic incentives).
• Leverage community feedback and make use of the community pool or treasury for short-term boosts instead of immediately committing a permanent emissions split.

By learning from other chains’ experiences and carefully weighing risks vs. rewards, Regen can make an informed choice on liquidity incentives. The right percentage is ultimately one that achieves the desired market liquidity for $REGEN with acceptable cost to the network’s health. With diligent management, liquidity mining can strengthen the Regen ecosystem by facilitating easier trading (for example, making it simpler for new participants to buy carbon credits tokens) while avoiding the pitfall of unchecked inflation. The key is to treat it as one component of the token economy – to be tuned as the network grows – rather than a set-and-forget solution. By applying the framework above, Regen’s community can align on a strategy that drives growth but also sustains long-term value for the $REGEN token and its holders.