Covenant Incentives (Talents)

Covenant rewards participation in the protocol through an incentives program based on Talents.

Talents are points that track your contribution to Covenant. They are earned by:

• Providing capital to Covenant markets

• Referring other users to the protocol

Talents are tracked off-chain and displayed on a leaderboard, allowing users to compare their participation across the ecosystem.

The incentives program runs in seasons, with a fixed maximum number of Talents distributed each season.

---

Season 2

Season 2 runs for 11 weeks: March 16th to May 30th.

During this period, Covenant will distribute up to 20,000,000 Talents (maximum)

Distribution rules:

• A maximum of 100 Talents per $1 deposited in Covenant

• Talents are distributed proportionally to the time-weighted TVL deposited or referred

Talents are split between:

• 95% → Users

• 5% → Referrers

---

User Talents

Users earn Talents are distributed proportionally to the long-term exposure to Covenant markets. Rather than rewarding short-term deposits, the system favors consistent participation over time.

User rewards are calculated using the following metric:

$$User Score =D_1^{1/2}.D_{20}^{1/2}.T.R$$

Where

• $D_1$ is the user's daily deposit TVL across participating markets

• $D_{20}$ is the user's average 20-day deposit TVL across participating markets

• $T$ is a +10% additional factor if the user follows Covenant on Twitter

• $R$ is a +10% additional factor if someone referred the user

Talents are distributed daily in proportion to each user's score.

Why this metric?

This design encourages healthy liquidity and discourages opportunistic farming.

It does so by:

• Rewarding consistent TVL maintained over longer periods

• Penalizing volatility, such as rapidly depositing and withdrawing capital

In practice, this means users who maintain stable exposure over time earn more Talents than users who briefly deposit large amounts.

---

Referrer Talents

Referrers earn Talents based on factors including the TVL contributed by the users they referred.

This uses the same long-term exposure logic as the user calculation, but based on the aggregate deposit of all individuals they referred.

$$Referrer Score =R_1^{1/2}.R_{20}^{1/4}.T$$

Where

• $R_1$ is the referred daily deposits TVL across participating markets

• $R_{20}$ is the referred average 20-day deposit TVL across participating markets

• $T$ is a +10% additional factor if the referrer follows Covenant on Twitter

Note that for referrals, the ¼ power is used for the 20 day average, leading to a sublinear increase of the referrer score vs TVL.

---

Worked Example

Consider the following simplified example.

User Activity

Alice deposits $10,000 into Covenant and keeps it there consistently.

After 20 days:

• $D_1 = 10,000$

• $D_{20} = 10,000$

Her score becomes:

Now consider Bob.

Bob deposits $10,000 most days, but last week took it out of Covenant markets for a few days

His averages become:

• $D_1 = 10,000$

• $D_{20} = 8,100$

His score becomes: 9,000