NFT Staking vs Airdrop Meta

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Is NFT Staking a better incentive than Airdrop?

I want to share some reflections on the new Feature Released by Metalswap: NFT Staking

I think it’s an interesting Feature as it aligns the incentives of a project and its DAO.

The arrival of the Uniswap v3 Liquidity system was a revolution in DeFi, allowing for a more efficient AMM and giving LPs new, mainly more efficient, earning opportunities. However, like any evolution, it also brought significant changes to the ecosystem.

Before this event, when the AMM liquidity system in DeFi was Uniswap v2, projects tended to incentivize liquidity in their token with Liquidity Mining programs. Users would deposit liquidity in a v2 pool, receiving an ERC-20 token called an LP Token. The project would allow this LP Token to be deposited in a special pool incentivized with various rewards. This Modus Operandi was widely used and very successful.

What has changed with Univ3?

Mainly, the market has recognized the superiority of this AMM, and most spot volumes have now flowed in this direction. Technologically, another fundamental change occurred: when you deposit as an LP in Uniswap v3 or similar, you receive a Liquidity NFT, no longer an ERC-20 token. This complicates the liquidity incentive program that had been built up to that point. The staking pools for ERC-20 LP tokens had to be completely rethought, and without a solution, there is no real way to directly incentivize liquidity deposits in a project’s spot market.

This is why this new Feature was born: NFT Staking.

This Feature allows for the creation of a Uniswap v3 style Liquidity NFT and locking it within the Metalswap dApp to receive incentives. For the user, there will be an incentive to create liquidity in the project’s token by receiving rewards, which will replace the fees naturally collected by the Uniswap Liquidity NFT. Therefore, it is clear that the incentive rewards in NFT Staking need to be greater than the fees the user would have collected without staking the NFT. The Uniswap fees will be collected directly by the protocol, which in my vision can use them to further increase liquidity on the token. This seems to me an intelligent and transparent way to incentivize liquidity, superior to the current system we see in DeFi, which is the Airdrop. Indeed, we see many projects currently incentivizing liquidity through point-Airdrop programs. NFT Staking distributes rewards proportionally to each NFT’s capacity to collect exchange fees, encouraging a game theory where people provide liquidity in a sensible manner to earn the highest possible incentive.

NFT Staking compared to Airdrop has several advantages:

  1. Transparency in terms of incentives, as the total incentive to be distributed is known beforehand.
  2. It encourages more sensible behavior, based on the previously explained liquidity deposit game theory.
  3. It creates higher retention; NFT Staking has a decreasing incentive over time, and the project can decide to incentivize it at any time if it notices a drop in liquidity. Airdrop programs, once finished, encourage an instant outflow of liquidity.

To me, it is a Feature with great potential to become a standard in DeFi. I believe it should initially be sponsored with OP and then become more sustainable mainly with the distribution of XMT.

What do you think?

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Hi Lorenzo. I agree with you, especially regarding the long-term contribution from the community. The airdrop trend has shown how users contribute to the growth of a project then, once the airdrop is released, they sell the token, abandon the project, and move on to the next one. NFT staking, on the other hand, allows for active contribution to the project and the receipt of long-term rewards, avoiding the selling of tokens upon airdrop release.

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Very interesting post.

I agree with you that the NFT staking feature is a better and more sustainable way to increase the liquidity of a token like XMT, and the work done by the team is truly incredible.

The main goal of this feature, as you rightly mentioned, is to increase the liquidity for the XMT/USDC pair, and so far it seems to be working, with locked NFTs reaching a total TVL of over $11K.

In addition to this innovative system for incentivizing liquidity, another system is emerging within DeFi, similar to MetalSwap NFT feature but using a different mechanism: I’m talking about bribes.

DApps like Curve have introduced this mechanism, allowing the teams of various DeFi projects to incentivize the liquidity of a particular pair by increasing the rewards for liquidity providers.

To increase LP incentives, in the form of CRV tokens in the case of Curve, various teams bribe token holders who vote weekly on the distribution of these incentives. Higher incentives mean higher APYs for liquidity providers and thus new liquidity for the pair.

In recent months, a new category of DEXs called DEX (ve:3,3) has emerged,especially in the L2 blockchains, using a similar system to allow various projects to incentivize liquidity within different pairs.

I don’t have data to declare which of the two systems is more efficient in terms of $ spent : $TVL attracted, but it is definitely a new mechanism that MetalSwap could consider implementing in the future when it needs to increase the liquidity for the XMT token again.

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