Four Strategies for DeFi Applications to Increase TVL

Increasing the total locked value ( TVL ) is a core objective of many Decentralized Finance ( DeFi ) applications. This article will explore four main strategies for enhancing TVL and analyze their advantages and disadvantages.

1. Token Expectations

Attracting liquidity through points activities is the most direct and effective method. Project parties do not need to invest large amounts of capital upfront; they only need to provide users with the expectation of obtaining tokens in the future. This strategy mainly attracts two types of users: traders and early participants. For projects that have not yet issued tokens, conducting airdrop activities is a highly attractive marketing tool. By providing point rewards to early users, they can attract them to participate and build a community, laying the foundation for future token issuance.

2. Cross-Project Collaboration

Collaborating with other projects can enhance the interoperability and liquidity of assets. This approach relies more on the background and channel resources of the projects themselves and is essentially a resource exchange. For example, allowing users to use tokens from other projects as collateral or means of payment on the platform. A typical case is the collaboration between a certain Bitcoin L2 project and a staking protocol, which achieved a win-win situation by introducing liquidity into the staking protocol.

3. Yield Incentives

Establishing a liquidity pool and offering trading fee rewards is a common incentive mechanism. Users can receive rewards by injecting assets into a designated liquidity pool. This method can quickly increase TVL, but it requires careful design of the reward mechanism to avoid inflation issues caused by excessively high rewards, and attention must also be paid to risk management.

4. Create New Assets

Innovative financial tools such as liquid staking and re-staking not only release the liquidity of staked assets, but more importantly, they can attract incremental funds. For example, certain staking certificates not only enhance the liquidity of staked assets but also create new investment opportunities, attracting more capital into the ecosystem. However, this approach also carries risks; if any link in the process encounters issues, it may affect the entire related asset chain and application ecosystem.

Strategy Comparison

From the perspective of the project party, the priority ranking of the four strategies for maximizing capital efficiency is as follows:

1. Token Expectation: Low Cost High Return
2. Cross-project collaboration: lower cost, mainly relying on resource exchange.
3. Yield Incentives: High costs, need to share platform profits.
4. Create New Assets: Highest Cost, Requires Maintenance of New Asset Liquidity

It is important to note that this prioritization is based on the assumption of quickly establishing market position and attracting users. In practice, project teams should flexibly adjust their strategies according to their own resources, market conditions, and specific business objectives. Moreover, these strategies are not mutually exclusive and can be combined according to the needs of different development stages and market feedback.