Four Strategies for DeFi Applications to Increase TVL

Increasing the total locked value ( TVL ) is a core objective for many Decentralized Finance projects. This article will explore four main strategies for improving TVL and their pros and cons.

1. Token Issuance Expectations

Attracting liquidity through incentive activities is a direct and effective method. Project parties do not need to invest a large amount of funds upfront; they only need to provide users with the expectation of obtaining tokens in the future. This strategy mainly targets the "arbitrage" user group, which consists of those who are keen to participate in early projects to obtain future airdrops.

Projects can attract user participation through various points reward activities, promising that points can be exchanged for platform tokens or other rewards in the future. This method can establish an active community even before the actual issuance of tokens.

2. Cross-Project Collaboration

Collaborating with other DeFi projects can achieve asset interoperability and liquidity. This strategy relies on the project's own background and channel resources, and is essentially a resource exchange.

For example, users are allowed to use tokens from other projects as collateral or means of payment on the platform. A typical case is the collaboration between a certain Bitcoin L2 project and a certain Bitcoin staking protocol, which achieved a win-win situation for both parties by directing liquidity to each other's platforms.

3. Yield Incentives

Establishing a liquidity pool and providing trading fee rewards is a common incentive mechanism. Users add assets to the designated liquidity pool and then receive corresponding rewards. This method can quickly increase TVL.

However, the project team needs to carefully design the reward mechanism to avoid inflation issues caused by overly high rewards, while also paying attention to risk management.

4. Create New Assets

Creating new assets through liquidity staking and re-staking not only releases the liquidity of already staked assets but also attracts incremental funds. For example, issuing a certificate for staked ETH, such as stETH(, improves the liquidity of staked assets and creates new investment opportunities.

However, this strategy also carries risks. If a certain link encounters issues, it may affect the entire related asset chain. For example, if stETH has problems, it will not only impact the stability of the Ethereum PoS mechanism but also affect various re-staking protocols that accept stETH as an asset.

Strategy Evaluation

From the perspective of the project party, the priority of these four strategies can be ranked as follows:

1. Token issuance expectation: low cost, high return
2. Cross-project collaboration: low cost, mainly resource exchange
3. Yield Incentives: High costs, need to share platform profits
4. Create new assets: highest cost, requires maintenance of new asset liquidity

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

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