Four Strategies for DeFi Applications to Increase TVL

Increasing the Total Locked Value ( TVL ) is a core objective of many Decentralized Finance ( DeFi ) projects. This article will explore four main strategies for improving TVL, analyzing their advantages, disadvantages, and implementation order.

1. Token Issuance Expectations

This is the most direct and cost-effective way. The project party does not need to invest a large amount of capital in the early stage; they only need to provide users with the expectation of obtaining tokens in the future through activities such as point rewards to attract liquidity.

The cryptocurrency market mainly has two types of participants: traders and early participants. The former profit from trading in the secondary market, while the latter receive token airdrops by participating early in projects.

For projects that have not yet issued tokens, conducting airdrop activities is an excellent marketing strategy. By offering reward points to early users, it attracts them to participate and look forward to the future convertible platform tokens, thereby building a user base and community without substantial capital expenditure.

2. Cross-Project Collaboration

This method mainly relies on the project's own background and channels, essentially being a resource exchange. For example, it allows users to use tokens from other projects as collateral or payment methods on the platform, enhancing asset interoperability and liquidity.

Taking a certain Bitcoin L2 project and a certain Bitcoin staking protocol as an example. After the L2 project issued its token, in order to retain liquidity within the ecosystem, it collaborated with the staking protocol to channel liquidity into the latter. As a result, the staking protocol became the largest Bitcoin staking platform, but only supports that L2, ultimately achieving a win-win situation.

3. Yield Incentives

A typical practice is liquidity mining, establishing liquidity pools and attracting users to participate through trading fee rewards. This method can quickly increase TVL, but it requires a well-designed reward mechanism to avoid excessive inflation and pay attention to risk management.

4. Create New Assets

Liquidity staking and re-staking can create new assets and attract incremental funds. For example, issuing staking ETH certificates not only enhances the liquidity of staked assets but also creates new investment opportunities.

However, this method also carries the risk of accumulation. Once a token in a certain link encounters problems, it may affect the entire related asset ecosystem.

Strategy Priority

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

1. Token issuance expectations: low cost, high returns
2. Cross-project collaboration: lower cost, mainly resource exchange.
3. Incentive for Earnings: High costs, need to share platform profits
4. Create new assets: highest cost, need to maintain new asset liquidity

However, in practice, project parties should adjust the priority of strategies based on their own resources, market conditions, and specific goals. These strategies are not mutually exclusive and can be flexibly combined according to the needs of different stages and market feedback.