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Let's say I would like to lock up some ADA in a smart contract for about 3 months. How will this compete with ~5% APR from staking rewards? Do all dApps need to provide a minimum ~5% APR just to keep up with inflation?

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There are many ways how to handle this and it's really up to the dApp creator.

But, keep in mind, that the smart contact can delegate their ADA too and earn rewards on it as well. I can see some dApps redistributing this rewards back to the users in the future.

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    Ah I see, I didnt know that smart contract had delegation enabled
    – CosmicCat
    Commented May 25, 2021 at 0:56

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