As a liquidity provider (LP), moving large amounts of capital to earn rewards demands absolute trust in the infrastructure you use. After all, no one wants to see tens, hundreds of thousands, or even millions of dollars vanish due to a mishandled contract or a hack.
In DeFi, unfortunately, this isn't rare. It's all too common to see users lose funds after depositing liquidity into a vulnerable smart contract that ends up being exploited.
So how can we build a DeFi incentive system without exposing users to these risks?
At Merkl, we approached the problem differently: by minimizing interactions with smart contracts altogether. It's a matter of design.
With Merkl, LPs never deposit their funds into our platform.
Instead, users deposit liquidity directly into the DeFi protocol that created the incentive campaign. Merkl then detects, offchain, that the deposit has occurred and that the user is eligible for rewards. At no point do users need to lock their assets into a Merkl smart contract. No deposits, no custodial risks.
For example, imagine Uniswap launches a campaign to reward users who provide liquidity to a specific pool. Users would directly supply assets to that Uniswap pool. Merkl monitors the onchain data, identifies the addresses that have deposited liquidity into the pool, and allocates rewards accordingly — without ever requiring users to move their funds outside the protocol they trust.
In short: Merkl is non-custodial.
There’s no need for users to trust Merkl with their funds — and no attack surface related to fund custody.
This approach stands in contrast to other incentive platforms, where LPs are required to transfer their liquidity into vaults created and managed by the platform itself — increasing the attack surface and significantly heightening the risks for users.
Merkl’s non-custodial model is made possible thanks to its unique architecture: Merkl runs offchain.
Our offchain engine continuously analyzes onchain data to track user activity and allocate rewards based on the rules set by incentive providers. Reward data is then processed into a Merkle tree, compressed into a Merkle root, and pushed onchain — enabling users to transparently and securely claim their rewards.
However, while Merkl is non-custodial, users should exercise caution when depositing funds into the smart contracts of the protocols behind incentive campaigns (e.g., depositing into Uniswap's smart contract to earn rewards on Merkl). It's crucial to interact only with trusted protocols and conduct thorough research to minimize exposure to potential vulnerabilities.
In conclusion, Merkl’s innovative non-custodial approach redefines the security standards in DeFi incentive systems. By removing the need for LPs to deposit funds directly into the platform, Merkl minimizes exposure to vulnerabilities and potential hacks. It’s for this reason that Merkl is now the preferred incentive platform for liquidity providers, with over 10,000 users managing billions in capital, visiting the Merkl App every day.