Liquidity Mining as an Attack Surface: Incentive-Induced Liquidity Attacks in Concentrated Liquidity Market Makers

Decentralized finance (DeFi) platforms commonly deploy volume-based incentive programs to bootstrap liquidity and improve market efficiency. We show that such subsidies, while well-intentioned, can create an underexplored economic attack surface in concentrated liquidity market makers (CLMMs). These subsidies enable a novel manipulation strategy. Attackers attract subsidized trading volume by providing highly concentrated liquidity, artificially inflating yields and luring victim liquidity providers into narrow price ranges. Once sufficient victim liquidity has accumulated, the attacker induces a price crash to extract value. We formalize this behavior as an incentive-induced liquidity attack and prove that it arises endogenously whenever subsidy intensity and volume caps exceed critical thresholds. Although subsidies are intended to bootstrap liquidity, these attacks ultimately lead to substantial liquidity depletion, causing platforms to incur incentive costs while market liquidity deteriorates. We conduct a large-scale measurement study on incentivized CLMM pools on BSC that are tied to Binance Alpha programs. We identify 29 attack events across 18 pools with 99 positive-loss victim addresses across 13 loss-bearing episodes and $2.87M in measured victim loss. These measurements show that incentive programs can amplify manipulation by introducing externalities that enable new extraction opportunities. Based on our findings, we propose mitigation strategies that reshape incentive parameters and information disclosure to reduce liquidity-provider exposure to incentive-induced attacks. Our findings show that incentive mechanisms designed to improve market quality can instead create the security vulnerabilities they aim to prevent.