How vKAT Sustains Liquidity and Protocol Competition

The vKAT model operates as a self-reinforcing cycle. Token emissions are strategically directed to high-priority liquidity pools, which attracts traders and deepens on-chain execution quality. Deeper liquidity generates more trading volume and activity. That increased activity translates directly into protocol fees—revenue that gets channeled back to vKAT holders who participated in governance votes.

What makes this particularly elegant? Protocols effectively compete with each other by offering vote incentives to vKAT voters. The better the incentives, the more likely vKAT holders direct emissions their way. This competitive dynamic—where protocols bid for governance support through rewards—creates a flywheel. Voters are incentivized to allocate capital efficiently, protocols are incentivized to offer real value, and liquidity providers benefit from tighter spreads. The cycle repeats and strengthens.