Merkl Insights #2: How Can Incentives Prevent Your Token From Dumping?

Tokens experience ups and downs. But with the right tool and strategy, you can mitigate the impact of drastic dumps. At Merkl, we are experts in incentive distribution and liquidity growth, helping DeFi protocols achieve goals like stabilizing token value.

Our approach? Building 'liquidity walls' on liquidity pools.

A liquidity pool is a pair of tokens that users can trade between. It relies on liquidity deposited by users who earn a share of the transaction fees generated by trades in that pool. This allows for decentralized token swaps without relying on centralized exchanges (CEXs).

Uniswap is the leading platform for liquidity pools, particularly known for offering concentrated liquidity. Liquidity providers can supply the two tokens in any ratio (40:60, 80:20,…), in a specific price range. This makes capital usage more efficient and can lead to higher returns, as providers earn fees from trades within their chosen range.

A liquidity wall refers to a large supply of liquidity within a specific price range (i.e at a specific ratio), requiring significant trading volume to push the price beyond that range. The increased liquidity counterbalances selling pressure, acting as a barrier.

For example, in a Uniswap v3 ETH/USDC pool, if many liquidity providers concentrate their liquidity between $3000 and $3100 for ETH, it creates a liquidity wall. Within this range, trades experience minimal slippage. However, significant trading activity is needed to push the price below $3000, as it required to deplete the liquidity in the wall.

With Merkl, creating a liquidity wall is straightforward. You can launch a concentrated liquidity (CLAMM) campaign in minutes to incentivize liquidity within a specific price range in a pool featuring your token. When setting rewards for liquidity providers, you control how they are distributed between the pool's two tokens and transaction fees.

By allocating a higher reward percentage to the token that isn’t yours (e.g., USDC), you encourage providers to supply more USDC relative to your token. This creates a liquidity wall, helping stabilize your token’s price and protect against dumps!

Looking to strengthen your token’s value? Get in touch!

Merkl is the leading platform for incentive distribution, with a team of experts in liquidity growth and incentive management and over $60M distributed for web3 giants like Uniswap, Trustwallet, and Optimism. We’ve also powered major liquidity events, including Superfest and zkSync Ignite.