Incentive structures are the systems of rewards and penalties that shape the behaviour of agents within an economic or protocol system, aligning individual self-interest with desired collective outcomes. In decentralised systems they encode rewards such as block subsidies, fees, and staking yields, alongside slashing or penalties, to make honest participation the rational choice. Well-designed incentive structures are central to mechanism design and the security of token economies.
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- In blockchain protocols, incentives such as issuance, transaction fees, and staking rewards are balanced against slashing and opportunity costs so that the cost of attack exceeds its benefit. Poorly calibrated incentives invite free-riding, centralisation, or extractive behaviour, making careful mechanism design a prerequisite for sustainable systems.