Vault Incentives

Within Morpho, users can incentivize both vaults and markets via Merkl, 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

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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

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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

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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