The proposed liquidity incentives for Uniswap v4 and Unichain are a great step in attracting initial liquidity, but how do we maximize the chance these incentives also contribute to long-term stickiness?
Given that hook adoption is a key part of UF’s v4 long-term growth strategy, it makes sense to allocate some of the incentives to hook-enabled liquidity pools, especially if we think the yields will be higher even after incentives are gone.
For example, hooks like Bunni’s rehypothecation feature that are built on Uni v4 rails allow idle liquidity to earn extra yield while still providing depth for trades. This means a majority of pairs with base assets like WETH, USDC, DAI, WBTC, and USDT will have a higher baseline APY even after incentives dry up.
Additionally, Bunni has just launched a referral program, where 50% of protocol fees initially go to referrers. This means that anything UF can bring in as additional liquidity can earn back 5% of swap fees generated by every dollar of liquidity they refer. This kickback structure helps reduce the net cost of liquidity incentives. We can even stack kickbacks focusing incentives on Bunni rehypothecation partners willing to conduct a similar program since they are in line to see an increased TVL and increased protocol fees as well.
If one of the goals is to increase the percentage of Uniswap v4 order flow coming from hooks, I think it makes sense to direct some incentives toward these strategies early on to ensure they gain traction.