One of the biggest challenges when distributing tokens as incentives is preventing users who receive them from selling immediately — this can lead to a drop in the token price and damage the reputation of a project.
That’s why some projects choose to distribute points instead. This allows them to reward users with something that can later be redeemed for tokens under predefined conditions. However, users still prefer cold, hard tokens over the promise of future rewards.
So how can you distribute tokens without triggering an immediate sell-off?
Rather than distributing their native tokens directly, which can create immediate sell pressure, some protocols now issue 'wrapped' versions of their tokens.
What does 'wrapped' mean?
A wrapped token is a token that represents another asset but with specific rules that apply to it. This new version enables the use of the underlying asset while preserving its original value.
Let’s take Euler, the lending protocol, as an example.
Euler distributes a token called rEUL as an incentive. rEUL is a wrapped version of the native EUL token. One EUL token can be converted into one rEUL, but the reverse process is not always straightforward. When users receive rEUL, they can immediately redeem 0.25 EUL per rEUL, while the remaining 0.75 EUL can only be claimed after a 6-month vesting period. Additionally, rEUL is non-transferable, meaning it cannot be sold or traded, thus preventing the creation of a secondary market.
Rewarding long-term users
By requiring users to wait before unlocking most of their rewards, protocols encourage long-term alignment. Rather than promoting quick profit-taking, this model rewards users who are committed to the protocol’s long-term success. It also helps delay sell pressure, allowing the project to grow before large volumes of tokens hit the market.
In the case of Euler, when rEUL was introduced in October 2024, the protocol’s TVL was just $12 million. Less than six months later — before anyone had fully vested their rEUL — the TVL had increased 100x, and the token price had quadrupled, much to the delight of users. This demonstrates how effective delayed and structured incentives can be.
How Merkl powers wrapped incentives strategies
Merkl natively supports the distribution of existing wrapped tokens as incentives.
For protocols looking to create their own, Merkl also offers a flexible library of wrapper contracts that can be customized to fit specific needs — making it easy to launch new wrapped token incentives directly through the platform.
Here are a few examples of what’s possible with Merkl:
- Auto-staking rewards: Some protocols want users to automatically stake their rewards as soon as they claim them. Merkl enables this natively through wrapper contracts —when users claim their tokens via the Merkl App, the tokens are automatically staked.
- Non-prefunded rewards: If a project prefers not to transfer tokens to Merkl in advance, a wrapper can be configured to keep the underlying reward tokens in the project’s smart contract until users claim them.
- Time-locked rewards: Projects can issue tokens that become claimable only after a specific date. Users accumulate rewards transparently — visible on their dashboard in the Merkl App — but cannot claim them before the unlock time.
Interested in token wrappers?
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Merkl supports a wide range of wrapper configurations, allowing campaign creators to fine-tune incentives well beyond traditional reward models — making campaigns smarter, more targeted, and more sustainable.