Why understanding reward sources matters

During the 2021 DeFi boom, reward rates often exceeded 1,000% through liquidity mining programs. These were unsustainable because they relied on printing new tokens rather than earning real fees.

Real rewards come from fees and services people pay for. Not-so-sustainable rewards come from token printing and collapse when emissions stop.

Red flags in reward systems

Token inflation - Constant minting to pay rewards dilutes each token's value.

Short-term user behavior - Users chase the highest reward rates and leave when they fall, creating unstable liquidity.

Ponzi-like incentives - Some schemes rely on new deposits to pay existing users. When inflows slow, the system collapses.

High reward rates without revenue - High rates are red flags unless backed by real protocol revenue.

Short-term incentives attract users who care only about emissions and do nothing to improve protocol utility.

How liquid restaking works

Liquid restaking lets you earn staking rewards while keeping your assets liquid. You deposit ETH or LSTs and get an LRT (liquid restaking token) that can be used in DeFi while earning rewards.

The process: ETH/LSTs → LRT → Use in DeFi + earn rewards

Spotting sustainable rewards

Three key questions:

1. Where do rewards come from? 

Look for multiple revenue streams from actual services, not just token emissions.

2. Is there real utility?

The protocol should solve actual problems with paying users.

3. What are the risks? 

Understand slashing, smart contract, and liquidity risks.

Kelp's sustainable model

Kelp has $1.8+ billion TVL and 550,000+ users. Here's how it creates real rewards:

Professional operators: Works with vetted operators like Kiln and Allnodes (each with Rated Effectiveness Rating (RAVER) scores above 96%)

Multiple revenue sources: ETH staking rewards + protocol fees + DeFi integrations

Real utility: rsETH works across 50+ DeFi protocols on 10+ chains as collateral

Performance focus: Rewards tied to actual validator work, not arbitrary emissions

Kelp vs short-term schemes

Short-term schemes: Print tokens → attract users → emissions end → users leave → protocol dies

Kelp's approach: Route capital to productive use → earn real fees → share with users → sustainable growth

Key takeaways

When evaluating liquid restaking protocols:

1. Look beyond headline rates - Examine where rewards actually come from

2. Check for real utility - Protocols should solve actual problems and have paying users

3. Verify operator quality - Professional operators with track records reduce risks

4. Understand all risks - Slashing, smart contracts, and liquidity risks are real

5. Assess business models - Multiple revenue streams beat emission-based rewards

Real rewards come from real services and transparent economics. Sustainable models will determine which protocols survive market cycles.

Disclaimer: This is not financial advice. Always DYOR and understand the risks involved before depositing into any DeFi protocol.