Key Takeaways
Executive Summary
On April 14, 2025, Gauntlet and the Uniswap Foundation (UF) launched a $21.8M incentive program (3.5M UNI tokens) to drive liquidity and activity growth for Unichain via a Uniswap DAO governance vote, which approved a $45M budget allocation for incentives across Unichain and Uniswap v4. The primary goal of the campaign was to kickstart Unichain volume to $22.5B.
In the weeks prior to program launch, Unichain TVS (Total Value Secured) hovered between $4M and $8M. During the campaign, TVS reached an all-time high of $1.4B, and cumulative volume hit $32.8B. All target KPIs were achieved by June 21 (three weeks before the target deadline) and with 3.3M UNI budget (198K UNI surplus, $1.5M as of July 9th).
The strong incentives performance can be attributed to rigorous data-driven modelling and analytics, informing biweekly adjustments of budget allocations. We also collaborated closely with the UF, partner protocols, and hook developers to align efforts and iterate for incentive optimization.
This report shares details and insights on the first three months (April 14 - July 19, 2025) of campaign performance to inform future growth opportunities and investments. If you have any questions or comments, please reach out to our team here, or DM us on Twitter/X.
Key Insights
Successful incentive campaigns require constant iteration, experimentation, and data collection. Campaigns that deploy fixed rewards to pools with the goal of driving sustainable value tend to suffer when incentives expire.
To mitigate the risk of mercenary capital and optimize for “sticky” volume and liquidity growth, we develop custom models to predict capital and order flow migration. As rewards are increased or decreased for specific pools, the model is updated, hypotheses for specific asset cohorts are tested, and trends are identified.
ROI narratives differ for stablecoins, bluechips, and long-tail assets. Same-same pairs compete differently across competing exchanges compared to volatile pairs. In addition to ensuring that spend efficiency is maximized, we seek to constantly uncover information about how capital and activity flow and use that information to inform our models.
Below are critical sustainability patterns observed across pools during the initial three-month campaign.
- Blue-Chip, high-volume pools began to experience organic flywheel: In particular, ETH/USDT0, USDC/ETH, and WBTC0/USDT0 successfully transitioned to organic fee-driven revenue models, with base yields now exceeding incentive yields and accounting for over 50% of total LP revenue.
- Governance token pools struggled to gain traction: COMP/ETH and UNI/ETH demonstrated poor organic demand and immediate liquidity flight upon incentive removal. These pools persistently had a low volume-TVL ratio (<0.2), indicating liquidity greatly exceeded the trading demand.
- Hook innovation success: Our collaboration with Renzo, Solo Labs, and Bunni* was an opportunity to explore hook design, the impact of hooks on orderflow routing, and LP affinity. The implementation validated market appetite for enhanced pool functionality, with hooked variants capturing 40-96% market share (within the Uniswap ecosystem) in their respective pairs and delivering superior capital efficiency through additional yield sources.
What’s next: The remainder of the program will prioritize ecosystem health, ensuring that Unichain emerges as a hub for genuine economic activity.
Performance Dynamics Over Time
Volume continued growing throughout the campaign: Trading volume grew at rates exceeding our incentive spending pace. This is evidenced by the consistently improving ratio of cumulative volume relative to total incentive spend. This trend indicates that traders increasingly route transactions through our incentivized pools as TVL reaches levels where price execution becomes highly competitive with other platforms.
High-demand pools saw base yields exceed incentive yields: Several high-demand pools (ETH/USDC, ETH/USDT, WBTC0/USDT0, and WBTC0/USDC0) have reached a significant milestone where their organic trading fees (base yields) now exceed the external incentive yields. While this represents increased sustainability, we have not yet achieved the complete virtuous cycle where increased volume-driven base yields attract additional TVL organically.
TVL stabilized as the campaign progressed: TVL expansion began to stabilize as the campaign progressed. This resulted in diminishing returns on investment over time, as continued spending did not produce increases in TVL proportional to earlier periods. Nevertheless, this effect is strategically essential: TVL requires stabilization over extended periods to establish reliable routing pathways for future trading activity. Historical data show that brief incentivization periods typically produce highly elastic (temporary) TVL responses. Instead, our campaign attracted stickier TVL.
Monthly Cumulative Volumes
All our monthly campaign volume goals were consistently exceeded. As mentioned, cumulative volume growth is outpacing incentive spend, which bodes well for the sustainability of meaningful economic activity on Unichain.
Monthly TVL
Unichain-wide TVL targets were also successfully exceeded, in large part due to the deployment of additional lending markets on Unichain, where the foundational liquidity would serve critical liquidation operations and offer strong price execution.
Standout Performance: WBTC0/USDT0 Pool
- Sustainable growth: Demonstrated consistent volume ($1.7B cumulative) and TVL ($36M at campaign end) expansion throughout the campaign period, as well as holding 60% market share compared to similar pools on other chains at the time of writing.
- Revenue independence: Organic trading fees now constitute 75% of liquidity provider returns, reflecting that this pool has built a sustainable flywheel and can support high volumes with minimal incentives.
- Market dominance: Achieved strong market share gains across both volume (77%) and TVL (33%) metrics, across comparable Uniswap pools on other chains.
- Efficiency: Generated $1,694 in cumulative volume per dollar of incentive spending.
Unclaimed UNI
At the time of writing, approximately 137,000 UNI tokens remained unclaimed from the original six campaign tranches, representing additional budget efficiency beyond our initial surplus calculations.
Merkl incentives must be claimed within one year of each campaign’s end. In coordination with the Uniswap Foundation, the unclaimed funds will be clawed back before this deadline. We will share more details with the community as we prepare for this clawback action to provide ample notice to LPs to claim their rewards.
Liquidity Sustainability and Stickiness Report
We comprehensively analyzed TVL retention patterns, examining the composition of total liquidity provider revenue sources and identifying where external incentives remain the dominant revenue driver versus organic swap fee generation.
The chart below illustrates the composition of LP revenue across incentivized pools derived from organic swap fees. Higher swap fee percentages indicate lower incentive dependency. These pools demonstrate sustainable economics where LPs can maintain profitability primarily through trading activity rather than external subsidies.
Positive sustainability signals (swap fee yield exceeding incentive yield):
- ETH/USDT0: Organic trading fees now constitute the majority of LP revenue, and TVL has remained stable despite incentive reductions.
- USDC/ETH: Similar pattern, with strong swap fee yield dominance and TVL resilience.
- WBTC0/USDT0 & WBTC0/USDC: Swap fee yields represent approximately 50% of total LP revenue, with no negative TVL response to incentive cuts.
These pools demonstrate a successful transition to self-sustaining liquidity ecosystems.
High incentive sensitivity (Risk of TVL Flight):
Excluding strategic migration pools (WBTC→WBTC0, vanilla→hooked variants):
- rsETH/ETH: Incentive yields dominated LP revenue during the campaign; limited organic trading demand suggests TVL vulnerability upon full incentive removal.
- wstETH/ETH: Despite ongoing incentives, artificial yields comprise the majority of LP revenue. However, wstETH's utility in lending markets (Euler) may provide alternative TVL destinations rather than complete capital flight.
- weETH/ETH: Similar risk profile to wstETH, complicated by our introduction of competing Bunni hooked variants that may fragment liquidity.
- UNI/ETH: Exhibited delayed LP response to incentive cuts, with position exits triggered primarily by UNI token price appreciation rather than yield changes. Maintains some organic trading demand with current TVL at $3M (down from $25M peak). This reinforces our observation that DeFi governance tokens generally lack sufficient trading demand for effective liquidity incentivization.
Strategic migration categories:
- WBTC/WBTC0: TVL declined significantly post-incentives (from $40M peak to $4M current), but this pool served its strategic purpose of facilitating OFT migration to bypass bridging requirements. Growing base yields indicate stable underlying demand despite lower absolute TVL
- Various Hooked Variants: Multiple pools show TVL migration patterns toward enhanced hook-enabled versions rather than complete capital exit
This sustainability analysis provides clear guidance for future incentive program design, notably the critical importance of underlying organic trading demand and the successful identification of pools ready for incentive termination. This metric is a key component of our bi-weekly assessments in determining when the time is right to reduce/cut incentives so as to ensure sustained activity.
Hooks Deep Dive: Innovation Drives Market Adoption
A primary focus of this liquidity mining initiative was to provide a proving ground for novel hook design and gauge LP and trader demand for such innovations. We sought to explore the viability of hook design, establish learnings about ecosystem routing for orderflow, and LP hook affinity.
To do this, we initially incentivized vanilla pool variants across multiple pairs, then strategically shifted incentives toward hooked pool variants as they became available to test their market viability.
We collaborated with three leading hook developers:
Renzo's dynamic fee hook (ezETH/ETH) aims to maintain optimal pricing between ETH-derivative assets.
- Renzo's dynamic fee hook (ezETH/ETH) aims to maintain optimal pricing between ETH-derivative assets.
- Solo Lab's dynamic fee hooks (ETH/WBTC0) adjust swap fees based on volatility conditions.
- Bunni's rehypothecation hook (USDC/USDT), which deploys idle liquidity into yield-generating lending markets to boost LP profitability beyond traditional swap fee revenue.
Below, we evaluate success primarily by volume and TVL market share compared to each hook’s vanilla pool counterpart.
Renzo
Renzo's ETH/ezETH dynamic hook has achieved strong market dominance, serving 90% of ezETH volume on Unichain and capturing 96% of ezETH TVL.
At the end of the campaign period, the pool generated a substantial base APR of approximately 7.4% compared to 1.5% for the vanilla alternative. The strong ratio of base APY (7.4%) to reward APY (3.5%) suggested potential for sustainable liquidity retention post-incentives.
Solo Labs
Solo Labs' ETH/WBTC0 dynamic fee hook has successfully captured market share, attracting 90% of ETH/WBTC0 TVL and volume.
Current base yields for the hooked pool (8.7%) reflect the successful TVL migration from vanilla to hooked variants as incentives were strategically reallocated.
Bunni*
Bunni's USDC/USDT hooked pool demonstrated strong market adoption, capturing approximately 40% of both TVL and volume market share compared to its vanilla V4 counterpart on Unichain.
The hook successfully delivers on its value proposition, generating higher base yields (4.14%) than the vanilla pool (1.66%), demonstrating enhanced capital efficiency through additional yield sources beyond traditional swap fees.
Conclusion
Our results demonstrate that strategic incentive deployment, combined with market appetite for onchain innovation through hooks, can achieve superior capital efficiency while building genuinely sustainable trading ecosystems.
Strategic achievements:
- Established Unichain as a competitive trading venue with $32.8B in volume generation
- Validated hook-based innovation as a differentiating factor in DeFi liquidity provision
- Identified sustainable vs. unsustainable liquidity patterns across diverse asset categories
- Achieved exceptional budget efficiency with significant surplus funds for continued development
Market impact: Unichain now hosts several pools where organic trading fees exceed external incentive yields, the gold standard for sustainable DeFi infrastructure. This transition from incentive-dependent to fee-driven revenue models positions these pools for long-term success independent of continued subsidization.
Forward-looking strategy: The remainder of the program will concentrate resources on proven winners while allowing natural market forces to determine the fate of less competitive pools. This approach prioritizes ecosystem health over vanity metrics, ensuring that Unichain emerges as a hub for genuine economic activity rather than artificially sustained TVL.
The campaign's success validates our thesis that thoughtful incentive design, differentiation through hooks, and data-driven optimization can build lasting competitive advantages in the increasingly crowded L2 landscape.
* The timeframe of this report ended prior to any Bunni hook concerns.
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