Layer 1 Player Avalanche Offers $180M in Incentives to Woo Defiers

Layer 1 blockchains are making extraordinary offers to attract DeFi protocols and juice liquidity.

It was Harmony earlier this week, and now it’s Avalanche. The Avalanche Foundation is offering $180M in liquidity mining incentives to bring more apps into its DeFi ecosystem.

The first recipients? Users of the Avalanche-deployed versions of lending platform Aave and automated market maker Curve Finance. Avalanche has committed $20M of its native AVAX token for Aave users and $7M for Curve users over a three month period.

Trading Fees

Investors seem to like the move — AVAX is up 42% in the last 24 hours, at $33.22 in early-morning trading NY time, according to CoinGecko data.

Curve has also deployed to Polygon as well as Fantom, which could bolster market share and trading fees.

Liquidity mining rewards are distributed to users who perform a given action on an application. In the case of Aave, the AVAX rewards will likely go to both lenders and borrowers on the platform in addition to the normal fees users receive for these actions. For Curve Finance, rewards will likely go to people who deposit assets for others to trade with.

With apps built on Ethereum generally dominating the market, offering liquidity rewards in a native token may become the go-to move by Layer 1 blockchains trying to keep up.

Grants Program

“This is the kind of thinking many in the Tezos community would welcome from the Tezos Foundation,” one user said on Twitter about Avalanche’s incentives offer.

Tezos is another Layer 1 blockchain that has struggled to capture momentum in crypto this year — the project’s XTZ coin boasts a $2.8B market cap, but its price is down 12% from a year ago. For contrast, Ethereum is up over 600% in the past year.

Liquidity rewards aren’t the only way for blockchains to grow their open finance ecosystems, though. Avalanche has a grants program that says that developers submitting a grant application for a lending app should “think Compound, or Aave.” Blockchain projects also use hackathons to grow their communities. Solana’s DeFi Hackathon last spring dished out $400K in prizes.