Distribution Types

The various distribution types of Merkl campaigns

Distribution types define the reward distribution model and how the total campaign budget is spent over time. They determine the economic structure of your campaign: whether you distribute a fixed budget proportionally, offer guaranteed APRs, or cap maximum returns.

Merkl supports various distribution models, allowing campaign creators to choose the approach that best fits their incentive goals and budget constraints.

The distribution types below are a non-exhaustive overview. The full, always-up-to-date list lives in the schema explorer in our developer docs.

📈 Variable Reward Rate Campaigns

In variable reward rate campaigns, rewards are distributed proportionally based on time-weighted liquidity within the eligibility pool.

This is the most classical form of campaign.

Key Characteristics

• Constant reward rate for campaign creators: A fixed amount of tokens is distributed per second, regardless of liquidity changes.
• Variable APR for participants: As more users join, rewards per user decrease (like slicing a fixed-size pizza into more pieces).
• Prefunded & fixed duration: The full campaign budget is deposited upfront, and the campaign runs for a set time.

Example: Liquidity Pool Incentives

Imagine an incentive program targeting liquidity in a pool:

• Day Start: Two LPs each contribute $100 (50%/50%).
• Midday: A third LP adds $200 (total pool: $400).

As a result:

• The first two LPs each get 50 tokens for their contribution in the first half of the day, then 25 tokens each for the second half.
• The third LP, who contributed $200 in the second half, receives 50% of the rewards for that period, which is 50 tokens.

Result: Early participants earn more rewards before new LPs enter, while later participants dilute the total yield for others.

Anti DoS Measures

To prevent excessive computational load and spam, Merkl applies an anti-DoS filter to Variable APR campaigns.

• Users earning less than 0.000001% of total campaign rewards per engine run are excluded.
• This prevents micro-distributions that could disrupt system performance.

Example: Uniswap V2 Liquidity Pool Campaign

• Campaign Duration: 14 days
• Total Value Locked (TVL): $1,000,000 (on Arbitrum)
• Merkl Engine Run Frequency: Every 4 hours (6 times per day)

For this campaign:

• Each reward distribution releases 1/84th of the total rewards (1 / (14 days × 6 runs per day)).
• If a user provides $10 of liquidity, they represent 1/100,000th (0.001%) of the total TVL ($10 / $1,000,000).
• Per engine run, their potential reward would be 1/8,400,000th (0.000012%) of the total rewards (1/100,000 × 1/84).
• Since this is above the 1/100,000,000th (0.000001%) threshold, the reward would be distributed.

However, if the TVL increased to $20,000,000, the same user’s share would drop to 1/2,000,000th (0.00005%), and their per-run reward would be 1/16,800,000th (0.0000006%), below the threshold. As a result, they would not receive rewards.

🔒 Fixed Reward Rate Campaigns

In fixed reward rate campaigns, users earn a predefined amount of rewards per unit of liquidity at a set rate.

Key Characteristics

• Constant reward rate per users: Users receive a fixed APR regardless of total liquidity.
• Variable cost for campaign creators: As more users join, the overall cost increases, but individual earnings remain stable.
• Campaign may finish earlier: Campaigns end when funds are depleted or when the scheduled duration expires. If a campaign runs out of funds before its end date, rewards are split proportionally (like a variable reward rate campaign) in the final run, then the campaign closes.

There are two types of fixed reward rate campaigns, depending on whether the distributed amount is pegged to a fixed token amount or to a fixed dollar value.

• Fixed token reward
  • Users earn a fixed amount of tokens, regardless of token price variations
  • Users’ APR is correlated to token reward’s price change
  • Total rewards amount may or may not be fully spent, depending of user’s participation
• Fixed dollar reward
  • Users earn a fixed amount of dollars (distributed in tokens)
  • APR in dollars is fixed for users (but the token amount may vary)
  • The amount of token distributed adjusts with token price variations (but the USD-denominated value is fixed)

Example: Fixed Reward Rate Campaign

A campaign offers $1 in rewards per $100 in liquidity per day - which makes a 365% fixed APR.

• If TVL = $100, the cost is $1 per day.
• If TVL = $100 million, the cost for the campaign creator scales to $1M per day.

You can also incentivize by the number of tokens held. Let's say that Bob wants to incentivize holding LONG and he doesn't know how to price it.

A campaign can offer $1 in rewards per 100 LONG held per day.

📉 Capped Reward Rate Campaigns

Capped reward rate campaigns work like variable rate campaigns, but the campaign creator sets a maximum APR that cannot be exceeded, ensuring users are never overpaid.

Key Characteristics

• Rewards are distributed across the entire campaign duration, though the full budget is only spent if TVL is high enough to sustain the capped APR.
• APR adjusts according to TVL: the higher the TVL, the lower the APR.
• APR cannot exceed the maximum set by the campaign creator. This prevents users from capturing excessive rewards, especially early in the campaign when TVL is low.

Example: Capped Reward Rate Campaign

A protocol launches a 4-week campaign with a total reward budget of 10,000 tokens to distribute. The APR is capped at 15%.

At the start of the campaign, the TVL averages around $150,000. Based on this TVL, the APR would normally be 20%, which would distribute approximately 576 tokens per week. However, due to the 15% APR cap, the actual APR is limited to 15%, resulting in fewer tokens distributed per week than the uncapped rate.

In week 3, TVL increases sharply to $500,000. As TVL rises, the APR adjusts downward accordingly, staying below the 15% cap. This ensures the campaign budget is distributed evenly and sustainably over the full 4 weeks.

🎯 Target Total APR Campaigns

Target total APR campaigns guarantee a minimum yield for token holders by topping up the difference between an external native yield and a target APR. Incentives are only paid when the native yield falls short of the target, so campaign creators never overpay when the venue is already competitive.

Key Characteristics

• Guaranteed minimum APR: Users are ensured a total APR combining the external native yield and Merkl rewards, as long as the campaign budget can sustain it.
• Conditional spend: Merkl pays (Target APR - Native APR) when the native yield is below target, and 0% when it is at or above target.
• Dynamic reward adjustment: The Merkl-distributed APR automatically adapts each engine run based on live external yield data.
• Budget efficiency: Incentive spend naturally decreases as the asset gains organic traction, since rewards are only paid when needed.
• Transparent for users: Users see the total effective APR (external yield + Merkl rewards) on the dashboard.
• Budget-bound behavior (creator's choice): when TVL grows beyond what the budget can sustain at the target, the creator picks the fallback — either the campaign ends early once the budget is consumed (like Fixed APR campaigns), or the distributed APR becomes dilutive and drops below target for the rest of the campaign (like Capped APR campaigns).

Example: Aave Market Incentives

A protocol wants depositors on an Aave market to earn at least 8% total APR across market conditions:

• Bull market (Native APR = 12%): Merkl pays 0%. Users earn 12% entirely through the native yield.
• Neutral market (Native APR = 6%): Merkl pays 2%. Users earn 8% (6% native + 2% Merkl).
• Bear market (Native APR = 2%): Merkl pays 6%. Users earn 8% (2% native + 6% Merkl).

This ensures consistent returns for users while minimizing incentive spend: the campaign creator only pays when the venue is not competitive on its own.

Variant: SOFR + TVL-tiered spread (ratcheted)

A specialized Target Total APR variant where the target itself is dynamic rather than fixed:

• Floating benchmark: the target is SOFR + spread, where SOFR is the live NY Fed Secured Overnight Financing Rate (30-day average), refreshed every engine run. The creator commits to a spread above a market rate, not a fixed APR.
• TVL-tiered spread: the spread tightens as the vault grows — e.g. 336 bps below $1B, narrowing on a published schedule down to 51 bps at $7B+. Larger vaults earn a thinner premium.
• One-way ratchet: the spread only ever tightens. The schedule is read at the highest TVL the vault has ever reached, so if TVL later drops the target does not loosen back up.
• Everything else matches Target Total APR: Merkl pays max(target − native vault APR, 0) on the vault TVL, 0 when the vault already beats the target, and users see the full target APY on the dashboard.

Availability

Target Total APR campaigns are not supported on every protocol — they require an integration with the venue's native yield source, though they work on top of any ERC-4626 vault. If you'd like to set one up on a protocol that isn't yet supported, please contact the Merkl team.