Gauges are farming smart contracts that take deposits in one asset (typically an LP token, a vault token, NFT position, etc.) and reward the depositor yield in staking and governance tokens.^[1]

Overview

Gauges are a governance mechanism that allows token holders to directly allocate incentive budgets for activities that support ecosystem growth. From providing liquidity incentives to enabling lending rewards, gauges give token communities control over key economic decisions.^[5]

Emissions are usually directed to users who provide liquidity within the protocol. This usage is measured via gauge smart contracts. Each liquidity pool has an individual liquidity gauge. To measure liquidity, users deposit their LP tokens into the gauge. The emissions each gauge receives depend on the current inflation rate and the gauge weight. Each user receives a share proportional to the amount of LP tokens locked in the gauge. ^[2]

Gauges are used to incentivize particular strategies and behaviors that are advantageous to the protocol, such as increasing lending, deepening the liquidity of certain pairs, or growing partnerships and integrations with other projects.^[1]

Types of Gauges

LP Gauge

A Liquidity Providers (LP) gauge is the most common type of gauge contract, taking an ERC-20 LP token as a deposit. Curve Finance, Frax Finance, and Balancer, ansd Sushiswap are some examples of DeFi protocols that use gauges to incentivize liquidity provision and drive ecosystem growth.

Curve originated the gauge mechanism and controls the flow of incentives to AMM liquidity providers. Frax was one of the first projects to realize the power of gauges and extended the idea by allowing liquidity providers to form long term commitments for additional rewards. Balancer also extended Curve’s mechanisms in different ways, including creating different types of gauges that weren’t just about incentivizing liquidity. Sushi’s “Menu of the week” was a similar liquidity incentive scheme that successfully drove early community adoption.^[5]

Most gauges incentivize LP positions from Fraxswap, Curve, Uniswap v2, etc. Each user receives a share of newly minted tokens proportional to the amount of LP tokens locked. Additionally, rewards may be boosted by up to a factor of 2.5 if the user vote-locks tokens for Curve governance in the Voting contract. Typically, these gauges offer a 2x veFXS boost of 4 veFXS per 1 FRAX in the LP position and an additional 1 year 2x timelock boost (unless otherwise specified).^[3][4][6]

Each liquidity gauge is assigned a type within the gauge controller. Grouping gauges by type allows the DAO to adjust emissions according to type, making it possible, for example, to end all emissions for a single type.^[3]

Version Liquidity Gauge

• LiquidityGaugeV2
  The v2 liquidity gauge added a full ERC-20 interface to the gauge, tokenizing deposits so they can be directly transferred between accounts without having to withdraw and redeposit. It also improves flexibility for onward staking, allowing staking to be enabled or disabled at any time and handling up to eight reward tokens at once.^[3]
• LiquidityGaugeV3
  LiquidityGaugeV3 is the current iteration of the liquidity gauge used for Curve pools on the Ethereum mainnet. It retains most of LiquidityGaugeV2’s functionality, such as tokenized deposits and flexible onward staking with up to eight reward tokens, with some modifications.^[3]

Lending Gauge

A lending gauge is typically deployed to incentivize FRAX lending activity in a money market such as Aave, Fraxlend, Compound, etc. The deposit token is aFRAX, fFRAX, cFRAX, etc. Lending gauges typically do not offer timelock boosts but offer up to 2x veFXS boost for 1 FRAX lent out per 4 veFXS.^[1][6]

Uniswap V3 Gauge

Uniswap v3 gauges take an NFT LP position as a deposit. These gauges are pre-configured at launch to accept NFT LPs at a specific tick range to incentivize only the exact concentrated liquidity position that governance approved for the pair. These gauges offer a 2x veFXS boost of 4 veFXS per 1 FRAX in the LP position and an additional timelock boost of 2x-3x for 1-3 year locks.^[1][6]

Vault Gauge

A vault gauge takes a vault strategy token as a deposit such as a Stake DAO or Yearn Finance vault token. Vault gauges typically offer a 2x veFXS boost of 4 veFXS per 1 FRAX in the vault position and a timelock boost of 2-3x for 1-3 years.^[1][6]