Range based incentive usecases

Range‐based incentives enable protocols to direct liquidity precisely where it is needed, yielding several key advantages:

• Deeper liquidity: Concentrating liquidity in the most critical zones minimizes slippage.
• Enhanced capital efficiency: Incentives are used more effectively, reducing liquidity acquisition cost significantly.
• Improved trading experience: Tighter spreads and robust liquidity depth lead to better prices for users.

This targeted approach maximizes the impact of incentive programs and helps align liquidity providers’ contributions with the strategic goals of the protocol.

1. Stablecoin pairs

In stablecoin pools (e.g., USDC/DAI or USDC/USDT), trading predominantly occurs near the 1:1 peg.

Strategy: Target rewards within a narrow range (e.g., 0.99–1.01) to concentrate liquidity around the peg.

Benefits:

• Deeper liquidity at the peg: Tighter liquidity reduces slippage.
• Efficient incentive spending: Reward funds are focused on the active trading area rather than being spread thinly across the full range.

2. Yield-bearing asset pools

Pools involving yield-bearing assets (e.g., WETH/wstETH) often see similar price movements due to underlying yield dynamics.

Strategy: Concentrate incentives in a tight band (e.g., 1.00–1.01) where the assets’ prices align.

Benefits:

• Optimized capital efficiency: LPs are rewarded on liquidity that is most likely to be used.
• Improved trading prices: Tighter spreads lead to a better trading experience.

3. Filling liquidity gaps in volatile asset pools

In volatile asset pairs, liquidity may be unevenly distributed, with some price ranges under-served.

Strategy: Target under-represented intervals by adjusting the reward range to encourage LPs to provide liquidity where it is most needed.

Benefits:

• Balanced liquidity distribution: Reduces extreme price swings and stabilizes the market.
• Enhanced market depth: Improves overall trading stability by filling liquidity gaps.