If there’s one thing that has united members of the cryptocurrency community in recent months, it’s the emergence of points.
It’s just that they don’t support them, they just oppose them.
“The point is, this is probably the stupidest bypass I’ve ever had in cryptocurrency while I’ve been here. He’s also a borderline fraudster.” said Gabriel Shapiro, Delphi Labs’ general counsel for X.
This frustration can be seen in the response to a new project announcing a points program. “Wow, some good points. That’s really interesting. “I could give you points, but imagine giving tokens,” he said sarcastically. answered One even harsher In their criticism.
Why do points get a bad reputation?
It’s not hard to see why. Over the past few years, the project has been rewarding loyal users and successful airdrop hunters with surprise token issuances, often worth thousands and sometimes hundreds of thousands of dollars. For some people, it could be life-changing money. Naturally, this phenomenon has led to an entire ecosystem of airdrop hunters trying to cash in on the next big airdrop.
But the point is exactly the opposite of what airdrop hunters are looking for. Those who performed some transactions in anticipation of the airdrop and got lucky when it arrived felt like they had beaten the system in some way. They felt that their ingenuity or sheer luck had brought them an unexpected windfall. But through points, users are submissive and obedient to the system, hoping that the system will treat them kindly and one day reward their loyal behavior with tokens. There’s no edge to be gained and it’s simply not fun.
Beyond this, points are more like IOUs that may never be delivered and are just numbers on a screen reminiscent of the web2 era. It is not on-chain, cannot be traded, and may not be converted into tokens. Most importantly, they have no value and probably never will.
Visually shows the appearance of points. video: Leonidas the Bold via X.
Some investors are also concerned that points may not have the staying power of a potential airdrop. “The founders believe that “points” are a smart and easy mode to lock users in indefinitely. But that’s not true. In fact, the opposite is true. Users can’t be everywhere at the same time and they become distracted.” said Long Solitude, an anonymous investor at VC firm Zee Prime Capital, explains X.
KVK, a pseudonymous investor director at VC firm HASH CIB, agrees that users have short attention spans and points out that most loyalty programs lack a clear end date, which makes the situation even worse.
“In a world where protocols have new points-based systems every day, it’s very difficult to stay relevant over time,” he said in a Substack post dedicated to points. “Attention is one of the critical ingredients for success, and a semi-infinite points program (from the user’s perspective) doesn’t help you capture it.”
Out of curiosity, The Block checked how many points were issued in total. Since the points aren’t on the blockchain, I had to download the app, check the leaderboard, and contact the project directly to get answers. In the end, we collected a total of 40.6 billion points across 12 projects. But those numbers are meaningless.
FriendTech: Points but no airdrops
FriendTech is a clear example of why users are frustrated with points. This project was one of the first to implement a clear points system in its app to reward participation. Each week it dropped points to users based on an unspecified allocation system. This worked great until it didn’t.
The first two months of the project saw $412 million in transaction volume, with users buying keys that gave them access to group chats of key influencers to resell at a high enough value to offset a 10% tax on sales. Recorded. But this quickly diminished. Over the next three and a half months, trading volume was just $126 million, and the number of daily transactions plummeted.
The number of daily transactions on FriendTech has decreased significantly. Image: TK Research via Dune Analytics.
One of the reasons is that traders were initially optimistic that the points would soon lead to an airdrop. An anonymous cryptocurrency influencer known as Dingaling, who had one of the most expensive channels at the time, said FriendTech would maintain its success until the token airdrop. When the project received funding from Paradigm, it raised hopes that it would soon become a success.
But so far that hasn’t happened, and anyone who burned money hoping for a larger allocation seems to have lost out.
Why do VCs love points?
While many retail investors complain about points, one class of cryptocurrency investors who seem to like them are venture capitalists.
One of the key elements is that points are more flexible than token issuance, which cannot be changed on a whim. “Points cannot replace product-market fit, but they provide the flexibility to test assumptions without the complexity and costs associated with launching a token,” Dmitriy Berenzon, partner at VC firm Archetype, told The Block.
Multicoin Capital partner Tushar Jain agreed that points are useful as incentives before token launch. “Launching a token is a lot of work, and once the token is live, changing the economics is much more difficult,” he said in the company’s 2024 outlook.
Partners at Dragonfly, a VC firm run by GM, said the points offer will allow NFT marketplace Blur to fine-tune incentives between seasons. Blur is currently in its third season of Points. They added that Blur’s failure to disclose some of its points criteria helped it avoid wash trading.
Edvin Memet, a researcher at The Block Pro Research, argued that airdrops with blind criteria tend to encourage more organic usage and generally lead to larger allocations. “Airdrops with blind criteria may not attract as many users prior to the airdrop, but they stand out as the fairest way to reward real users. “This is also the system that is most likely to lead to significant airdrop allocations, which can generate a lot of publicity and attract new users after the airdrop,” he said, citing liquid staking project Jito as an example.
Memet noted that Manta’s specific points-based system allowed it to extract more value locked into smart contracts than it could have otherwise. The project also automatically staked linked Ether to maintain its value. He said he expects other Layer 1 and Layer 2 projects to use similar systems in the future.
Jain also pointed out that since the points are worthless, it helps avoid some of the regulatory risks seen with airdrop tokens. “Points have less regulatory risk because they have no units, no maximum supply and are non-transferable,” he said.
However, some VCs realize that points may not have infinite longevity.
“I see this as a new story for cryptocurrency, something new, something exciting,” Kavita Gupta, founder and general partner of Delta Blockchain Fund, told The Block. “But we don’t yet know if this is just a fad.” “We will continue to use the point incentive system for everything, but eventually everyone will offer something like this, so I think it will be more important to attract customers than to keep them for a long time.”
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