3. Emission Reward Structures
Emission rewards are considered fundamental for lending protocols to successfully attract liquidity and develop their user community. That’s especially true for a new entrant like Minterest, because emission rewards have become constituent in liquidity providers determining total APY. For liquidity providers the value of emission rewards is dependent on two factors:
- 1.the number of tokens they reasonably expect to receive over a given period
- 2.the value they can realise from such emissions in the future.
Reward structures lacking performance value are limited in long-term performance, since they cannot form underlying value in their token economies other than that of voting rights. Rewarding users with ever more governance tokens with no performance value causes predictable inflationary impacts and undermines long-term holding.
These older reward structures miss the opportunity to create added value for liquidity providers by way of optimised APY. They also lose the opportunity for such DeFi protocols to provide alternative models to traditional finance which truly outcompete over the long term.