> For the complete documentation index, see [llms.txt](https://vaultbook.gauntlet.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://vaultbook.gauntlet.xyz/vaults/morpho-vaults/incentives-and-performance-fees.md).

# Vault Incentives

Within Morpho, users can incentivize both vaults and markets via [Merkl](https://merkl.xyz/), a permissionless reward distribution protocol. Suppliers to Gauntlet vaults automatically receive any active incentives based on their vault positions.

## Merkl Distribution Types

Merkl supports several campaign structures, each suited to different incentive goals.

### Variable Reward Rate

A fixed token budget is allocated per second across all active suppliers, so APR is variable and adjusts as total liquidity in the vault or market changes.

**How it works:** Rewards are distributed proportionally based on time-weighted liquidity. Early participants earn a higher share before additional liquidity enters. As more suppliers join, rewards dilute proportionally.

|          |                                                                                         |
| -------- | --------------------------------------------------------------------------------------- |
| **Pros** | Early entrants earn elevated APR; straightforward budget planning for campaign creators |
| **Cons** | Yields dilute as TVL grows; later participants earn less than early ones                |

***

### Fixed Reward Rate

Users earn a predefined amount of rewards per unit of liquidity at a fixed rate. Campaigns can be denominated in tokens or in dollar terms.

**How it works:** Each supplier earns a consistent APR regardless of how much total liquidity is in the pool. The campaign ends when the budget is exhausted.

|          |                                                                                                      |
| -------- | ---------------------------------------------------------------------------------------------------- |
| **Pros** | Predictable yield for suppliers; can be structured in token or dollar terms                          |
| **Cons** | Campaign creator's cost scales directly with participation; budget may go unspent if TVL remains low |

***

### Capped Reward Rate

Functions like a variable rate campaign but with a maximum APR ceiling set by the campaign creator.

**How it works:** APR adjusts with TVL but cannot exceed the defined cap. This prevents early entrants from capturing disproportionately high rewards during low-liquidity bootstrapping periods.

|          |                                                                            |
| -------- | -------------------------------------------------------------------------- |
| **Pros** | Sustainable budget distribution; prevents APR spikes from low initial TVL  |
| **Cons** | Less upside for early participants compared to uncapped variable campaigns |

***

### Target Total APR

The campaign tops up yield to a defined minimum APR target. Rewards are only distributed when native yield falls below the target; no incentives are paid out when organic yield meets or exceeds it.

**How it works:** Merkl calculates the gap between current native yield and the target, distributing only enough rewards to close that gap. Incentive spend automatically decreases as organic yield grows.

|          |                                                                                                    |
| -------- | -------------------------------------------------------------------------------------------------- |
| **Pros** | Most capital-efficient structure; spend declines automatically as organic yield increases          |
| **Cons** | Limited protocol availability; requires reliable native yield data to calculate the gap accurately |


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