There are two primary reward systems utilized by AMMs to incentivize users to provide liquidity.
The first is determined by fees generated through trading/arbitrage. This is preferable for pools that experience high volume.
The second is emission-based governance rewards that are distributed according to DAO votes/bribes. This is preferable for pools which contain highly inflationary tokens.
Overall, which model leads to the most effective liquidity provision?
Neither is objectively superior! It’s important to remember AMMs were born out of necessity since LOBs (limit order books) were computationally intensive (+cost prohibitive) for Ethereum users in 2017. The way tradfi market structure evolved was thru experiementation with various incentive mechanisms.
Nearly every successful exchange today no matter the assets it offers traders has tried #2 which works for short periods for user/trader/volume acquisition but it fizzels out as the costs to run this exceed revenue if another incentive (or more favorably, organic growth!) takes over. DeFi example: dydx. CeFi example: BitMex, Binance. Tradfi example: NYSE/NASDAQ
(1) is a natural successor to #2 **if** the exchange has picked up material REAL volume as you stated. The trade-off being, with more volume may come high volatility which will damage passive LPs who arent able to react to price movements and update their quotes.
Hope that helps or kick-starts a good convo!