Create a Liquidity Mining Program Like SushiSwap’s New Incentives: Boosting User Participation

Liquidity mining was once the primary engine for growth in DeFi, helping protocols bootstrap liquidity and attract users. However, the landscape in 2025 presents a different challenge: user retention has declined even as new wallet activity increases. This signals a growing inefficiency in traditional reward models.

The problem isn’t participation—it’s persistence. SushiSwap, for example, reported a noticeable drop in monthly user retention despite an influx of new users. Many liquidity providers are quick to enter but rarely stay long enough to generate lasting value for the protocol.

To address this, leading platforms are shifting from aggressive emissions to smarter, more sustainable models. SushiSwap’s incentive overhaul reflects this trend—balancing emissions, optimizing distribution, and rewarding long-term behavior. It’s a necessary evolution for protocols aiming to retain users and boost meaningful on-chain activity.

SushiSwap’s New Incentive Model: What Actually Changed

SushiSwap introduced a significant upgrade by transitioning from its legacy MasterChef V1 system to the more modular and efficient MasterChef V2 framework. This change was not merely cosmetic—it fundamentally improved how rewards are allocated and managed.

• Modular Architecture with MasterChef V2
  MasterChef V2 separates core emission logic from reward allocation. Emissions are handled through the central contract, while additional incentives—like time-weighted rewards—are distributed via specialized rewarder contracts. This structure enables greater control, flexibility, and future scalability.
• Locked Liquidity Provision (LLP) for Time-Weighted Incentives
  To encourage commitment, SushiSwap introduced Locked Liquidity Provision. LPs who lock their assets for predefined durations receive boosted rewards, with multipliers increasing over time. This mechanism rewards long-term participation and helps stabilize the protocol’s liquidity base. Treasury-backed depth ensures internal liquidity remains resilient even in volatile market conditions.
• Reduced and Controlled Emissions
  SushiSwap has moved from its original 1,000 SUSHI per block model—later reduced to 100—to a finely tuned emissions schedule that targets an approximate 1.5% APR. The goal is to avoid over-inflation while maintaining competitive returns for LPs.
• Dynamic Pool Weighting Based on Yield Performance
  Instead of distributing rewards equally across pools, emissions are now adjusted dynamically. Pools that drive higher volume and protocol fees receive more SUSHI allocation, creating a feedback loop that prioritizes high-impact participation over superficial TVL gains.

Measured Results: Efficiency and Impact in Numbers

SushiSwap’s revamped incentive model wasn’t just a cosmetic upgrade—it delivered tangible, quantifiable results that proved the power of smart liquidity mining.

Let’s break down the numbers.

• Efficiency went through the roof: In the YFI-ETH pool, SushiSwap saw a 5× increase in volume per SUSHI token emitted, according to analysis by Gauntlet. This optimization saved the protocol nearly $22 million annually in unnecessary rewards, while maintaining deep liquidity and healthy trading volume.
• Protocol revenue soared: Gauntlet’s simulation revealed that with refined reward allocations, SushiSwap generated an additional $300 million in daily trading volume, translating to a staggering $55 million boost in yearly protocol revenue—without printing more tokens.
• TVL milestone achieved: After launching MasterChef V2 and deploying to chains like Arbitrum and Polygon, SushiSwap’s Total Value Locked surged beyond $1 billion. This was not only a win for capital inflow, but also signaled renewed trust in the platform’s sustainability model.
• 2025 snapshot: As of now, SushiSwap holds around $125 million in TVL, processes about $35 million in daily volume, and collects $6 million in annualized fees—with a sustainable $1 million in net annual protocol revenue. This transition from hypergrowth to sustainable yield shows how refined mechanics can lead to long-term viability.

Key Takeaways: What Builders Can Learn

SushiSwap’s evolution is more than a case study—it’s a blueprint. Here’s what developers and protocol architects should take away:

• Emission discipline matters: Gone are the days of aggressive token farming. SushiSwap shifted from flat, inflationary emissions to a leaner model targeting an average APR of just ~1.5%. This curbed token dilution and improved long-term token health.
• Dynamic allocation = smarter incentives: By leveraging Gauntlet’s incentive engine, SushiSwap adopted outcome-based emissions, where reward distribution was fine-tuned based on performance metrics like volume efficiency. The result? Better results with fewer tokens.
• Locking liquidity builds loyalty: Implementing Locked Liquidity Provision (LLP), SushiSwap incentivized users to commit for the long haul. Time-weighted incentives meant that those who stayed longer reaped more rewards—reducing churn and deepening the protocol’s TVL.

Designing Your Own Gainful Liquidity Mining Program

Ready to build your own version of SushiSwap’s success? Here’s how to lay the foundation for a robust liquidity incentive system:

• Start with clear goals: Whether you’re aiming to boost TVL, generate trading fees, increase user stickiness, or enhance governance participation, your design should revolve around a north star metric.
• Craft your emissions architecture: Forget unlimited emissions. Consider structured models like bootstrap bursts, gradual halvings, or setting an APR ceiling to keep inflation in check.
• Pick your pools wisely: Don’t just chase volume. Balance high-performing pools (like stablecoin pairs) with strategic emerging asset pools. This approach helps diversify liquidity and builds stronger ecosystem alignment.
• Reward structures should evolve: Use time-weighted boosts to favor long-term liquidity providers. Introduce tiered bonuses for top LPs, or locked LP multipliers to stabilize pool depth.
• Let your community decide: Give token holders governance rights over emissions via on-chain voting. Not only does this increase user engagement, but it also decentralizes growth strategy turning users into stakeholders.

Advanced Incentive Mechanics: Beyond SUSHI Rewards

Dual and Integrated Rewards

SushiSwap and similar DeFi protocols are increasingly using dual reward models, combining $SUSHI with partner tokens, NFTs, or on-chain XP systems. These layered incentives allow protocols to target different user motivations—monetary gains, digital identity, or exclusive access. NFT-based rewards and reputation points also introduce status elements that drive longer engagement cycles.

Time-Based and Commitment Multipliers

Staking models now often include reward multipliers tied to time commitments. Liquidity providers who lock tokens for longer durations receive proportionally higher rewards. This structure increases protocol stability by minimizing token rotation and improving predictability of capital.

Vote-Escrowed Tokenomics (ve-Model)

The vote-escrow model, pioneered by Curve and adapted by SushiSwap (veSUSHI), enables users to lock tokens in exchange for both governance power and higher yields. This mechanism aligns long-term interest in the protocol with real influence over its direction. Protocols using ve-models tend to observe improved user retention and reduced token sell pressure.

Vesting to Curb Volatility

Protocols now implement vesting strategies to reduce reward dumping. Instead of instant token withdrawals, liquidity rewards are subject to gradual release schedules. This prevents abrupt exits, protects price floors, and fosters deeper ecosystem participation over time.

Gamification: From Finance to Engagement

Missions, Milestones, and Seasonal Campaigns

Structured engagement through campaigns such as “weekly staking,” “monthly lock-in,” or “first-time LP” provides clear, actionable objectives for users. Seasonal campaigns tied to protocol milestones or external events (like ETH upgrades or token anniversaries) help renew interest and create regular interaction loops.

Leaderboards and Performance Rankings

Leaderboards rank liquidity providers based on volume, streaks, or earnings, adding a competitive element to participation. These rankings offer more than vanity—they enable tiered benefits and build an achievement-driven user base. Top contributors may gain higher yields or early access to new pools.

Zealy and Galxe Integrations

Both Zealy and Galxe enable Web3 protocols to launch on-chain campaigns with quests, streak tracking, and XP rewards. SushiSwap and its peers have used these tools to drive substantial user acquisition. These platforms also allow wallet-linked profiles, giving users a persistent on-chain identity tied to their liquidity activity.

Loyalty & Retention: Deepening User Relationships

Transparent, Real-Time Dashboards

User dashboards displaying current deposits, yield projections, earned rewards, and historical activity increase user confidence. These interfaces serve as operational hubs where LPs can make informed decisions about reallocating or compounding their liquidity.

Social and On-Chain Feedback Loops

Integrations with Discord, Telegram, and Twitter automate feedback on user activity. Examples include real-time leaderboard announcements, liquidity milestones, or XP gains. These mechanisms turn backend activity into public recognition, reinforcing engagement and promoting return visits.

Referral Programs and Milestone Unlocks 

Structured referral systems incentivize user growth through staking bonuses or exclusive pool access. Meanwhile, milestone-based rewards—triggered by metrics like cumulative deposits or consistent weekly activity—encourage deeper liquidity commitments. These mechanics combine acquisition and retention into a continuous growth engine.

DAO‑Governed Incentives: Aligning Token Holders & LPs

• LP‑driven reward allocation via on‑chain voting
  Imagine if every LP could steer incentives toward pools they believe matter. That’s precisely what on‑chain voting empowers. Instead of a top-down reward model, LPs collectively decide where emission flows, creating both transparency and shared accountability.
• Implementation methods: gauge votes, quadratic voting, smart‑contract triggers
  Most DAOs use gauge voting, where ve-token holders assign weight to pools—the more you lock, the stronger your vote. Then there’s quadratic voting, which tempers big whales by making extra votes cost exponentially more—so ten votes cost 10² = 100 tokens, balancing influence. Smart‑contract triggers automate reward disbursement based on vote results—no manual wrenching needed.
• SushiSwap’s proposals to democratize incentive direction
  The team behind SushiSwap has laid groundwork for LPs to propose and vote on where incentives go, embedding real DAO functionality into their MasterChef contracts. What’s more, recent academic work shows that many DAOs struggle with low voting participation and high vote concentration. SushiSwap’s model aims to flip that script by empowering active LPs with consistent, meaningful governance.

Comparative Case Studies

Let’s see how the top protocols put these ideas into action, and what you can learn from them:

SushiSwap V2 — why dynamic allocation and LLP matter

SushiSwap introduced Locked Liquidity Provision (LLP): lock LP tokens for boosts, rewarding loyalty rather than short‑term gains. They also dynamically wired incentive weight across pools—helping them maintain ~$1B TVL via Arbitrum and Polygon deployments.

Velodrome — vote‑escrowed locking to increase LP loyalty

Velodrome combines vote‑escrowed tokens (veVELO) with a ve(3,3) model: the longer you lock, the stronger your governance and reward access. Plus, veVELO holders actively vote on pool gauge weights—and even capture fees/bribes.

Trader Joe V2 — focused liquidity book methodology

Rather than blanket liquidity, Trader Joe V2’s Liquidity Book allows LPs to pick price “bins” for concentrated deployment, tightening capital use and reducing slippage. They also tune bin ranges to market volatility, which helps active market makers earn more fees during ups and downs .

Aura Finance — layering incentives over Balancer

Aura sits on top of Balancer, issuing its own ve-token (vlAURA) by wrapping BAL‑based LP tokens. DAO member gauge‑vote access and treasury‑based rewards ensure sustained liquidity across key pools—with DAO votes deciding distribution

Implementation Blueprint: Step‑by‑Step

Designing a liquidity mining program isn’t just about rewards—it’s about orchestrating mechanics, user flow, and trust. Below is a clear, builder-ready guide to implement a functional, scalable system inspired by protocols like SushiSwap, Velodrome, and Aura.

1. Smart Contract Modules: The Core Logic

• MasterChef Variant for Staking
  Build or customize a MasterChef-style contract that supports multiple staking pools. Each pool should allow LP tokens (or ve-token variants) and calculate proportional rewards based on allocation points.
• Rewarder Contracts
  These allow flexible reward structures: multi-token distributions, time-based boosts, vesting rules, and bonus multipliers. Use modular contracts that plug into the main staking logic so you can upgrade easily later.
• Gauge Voting Contracts (optional but powerful)
  Implement vote-based reward allocation where ve-token holders influence which pools get emissions. Make it compatible with vote-escrow systems like ve(3,3) or vlTokens for governance-based incentives.

2. Emission & Vesting Backends: Aligning Incentives with Retention

• Emission Schedule Design
  Define how tokens flow—whether through a fixed-rate, decay curve (like SUSHI’s original model), or dynamically based on TVL and vote outcomes. Set upper and lower bounds to avoid runaway inflation.
• Snapshot Mechanism
  Take regular snapshots of LP stakes, votes, and ve-token balances to compute rewards fairly, especially if users move tokens around between epochs.
• Recalculation Triggers
  Use chain events or cron jobs (via backend oracles or keepers) to trigger reward updates, voting results, or tier shifts. This keeps the system fresh without overloading gas fees.

3. Frontend & Dashboard: Making It User-Centric

• Wallet Connectivity
  Integrate with MetaMask, WalletConnect, and other major wallets. Support single-click approval and staking UX.
• Real-Time Data Visuals
  Show APY, pending rewards, lock durations, bonus multipliers, vesting timers, and voting weights. A well-designed dashboard builds trust and transparency.
• Voting UI
  If DAO-based, provide a seamless voting experience—allow users to see pool options, vote weights, outcomes, and bribes (if any) without needing to dive into a forum or Etherscan.
• Responsive & Gamified Elements
  Use subtle animations, tier badges, streak indicators, and reward meters to keep engagement high—similar to what Zealy and Galxe do for quests.

4. Audits & Simulated Testing: Security Is Non-Negotiable

• Smart Contract Audits
  Work with at least one reputable firm (e.g., CertiK, Trail of Bits, or PeckShield) and one community-based audit. Focus on access control, reentrancy protection, and manipulation of vote logic or reward distribution.
• Simulation Framework
  Test user behavior under stress—multiple votes, high-volume staking/unstaking, reward boosts, flash loans, and governance edge cases. Tools like Hardhat, Foundry, or Tenderly help simulate attacks and test efficiency.
• Bug Bounties and Testnet Campaigns
  Before mainnet, run a bug bounty via Immunefi or Hats Finance and consider incentivized testnet participation with NFTs or XP rewards.

Conclusion 

A well-designed liquidity mining program is more than just token rewards—it’s about aligning incentives, driving user retention, and building long-term protocol health. SushiSwap’s evolution highlights how modern DeFi platforms can boost participation through dynamic allocation, DAO-driven incentives, and smart contract innovation. Whether you’re launching your first yield campaign or optimizing an existing ecosystem, focusing on sustainability and user experience is key. Blockchain App Factory provides decentralized exchange platform development services that help you build feature-rich, secure, and scalable liquidity mining systems tailored to your protocol’s growth.