Definition ∞ Onchain rewards are incentives distributed directly on a blockchain protocol to participants for their contributions to network security, liquidity provision, or governance. These rewards are typically native tokens or other digital assets, automatically dispensed by smart contracts. Examples include block rewards for miners or validators, and yield for liquidity providers in decentralized finance. They serve to align participant behavior with the network’s goals.
Context ∞ News frequently discusses onchain rewards in the context of new protocol launches, changes to tokenomics, or analyses of staking and yield farming opportunities. The design of these reward systems is critical for a digital asset’s long-term sustainability and economic security. A key debate involves optimizing reward distribution to prevent centralization while ensuring sufficient incentive for network participants. Future developments often involve more sophisticated and dynamic reward mechanisms.
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