In the past few months, the crypto industry has popularized points systems to attract early users. Points systems have long existed in the realm of web2, but recently, many web3 protocols have begun implementing them to attract early users.

So far, points systems have been successful. However, experts in the field have noted with concern the pitfalls of using point systems. In this article, we’ll explore points systems in detail and the new frontier they bring to web3.

TL: DR🍿

1. Many protocols are adopting point-based reward systems to incentivize early users🎁

2. Points often signal an upcoming airdrop in a protocol🪂

3. Point systems could offer regulatory advantages👨‍⚖️

4. Some experts have noted their exploitative nature and discouraged protocols from using points systems⛔️

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What Are Points Systems?🫵

Point systems refer to reward mechanisms implemented by protocols to incentivize user participation and engagement. These systems typically allocate points to users based on specific actions, such as providing liquidity, trading, or referring others. 

Points often serve as indicators of a user's activity level within the protocol and can later be redeemed for certain rewards, most commonly airdrops. Blur is credited with pioneering the points system back in October 2022. This sparked a trend across the crypto world, inspiring other platforms to follow suit. 

Why Are Protocols Adopting Points Systems?☝️

Point systems employed by protocols serve as a strategic tool for guiding and influencing user behavior. By associating specific activities with point rewards, projects can effectively steer users towards actions deemed most valuable for the platform's growth and sustainability. 

This level of control over user engagement surpasses traditional methods, allowing projects to optimize their ecosystems and incentivize desired behaviors with precision.

Airdrop Implications🪂

The allure of potential airdrops inherent in point systems serves as a powerful incentive for user participation. By subtly hinting at the possibility of future token rewards, projects can attract and retain users without explicitly committing to token distributions. 

By refraining from explicitly promising tokens, projects can sidestep potential regulatory hurdles and operate within legal boundaries more comfortably. This adaptability allows protocols to navigate the evolving regulatory landscape while maintaining a robust user base and fostering community growth.

This approach is particularly useful in jurisdictions like the United States, where regulatory uncertainty surrounding tokens complicates token offerings. Thus, point systems offer a pragmatic solution for bypassing legal ambiguities while still effectively incentivizing user engagement.

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Previously Successful Points Systems🥇

Among the protocols that have effectively leveraged points systems to achieve success are NFT marketplaces Blur and Tensor. These platforms have demonstrated their ability to capture market share from well-established competitors like OpenSea and Magic Eden. Through the strategic implementation of points systems, Blur and Tensor attracted users and increased engagement within their NFT marketplaces. 

Their success serves as a testament to the effectiveness of points systems in driving growth and establishing dominance within the industry. Since their success, early-stage protocols have caught wind of the new strategy in town, and it seems to be working. 

For example, MarginFi unveiled its proprietary points system in July 2023. Within a mere two months, the crypto assets deposited in MarginFi surged dramatically, soaring sevenfold to exceed $21 million. MarginFi has swiftly risen to prominence, frequently cited by Crypto Twitter among the top protocols to farm airdrops.

Which Protocols Have Ongoing Point Systems?🤷‍♂️

With the success and popularity of points systems on the rise, many protocols have moved to implement them. Among the protocols with ongoing points systems include:

• EigenLayer

• Blast

• Parcl

• Kamino

• MarginFi

• Rabby Wallet

• Tensor

• MagicEden

• Farcaster

How to Secure Points👀

Some of the most common strategies implemented by protocols to award points include:

• Incentivized activity: Simply using a protocol can earn you points. This may include performing quests on Galxe, trying out features on testnets, making referrals, minting an NFT, etc.

• Bridging tokens: Bridging tokens, as in the case of Blast, may be a way to attract liquidity into an ecosystem before it launches its native token. Many protocols must incentivize early users who bridge tokens.

• Staking/Lending/Borrowing: Popular with DeFi, these activities help to bootstrap liquidity into a protocol and encourage early use.

• Gamified incentives: Participating in incentives with public leaderboards will help protocols engage early users. Early users can track the performance of others, and know how they rank in terms of reward distribution.

Concerns Surrounding Points Systems 😬

Despite their utility, some experts have voiced their concerns regarding the potential pitfalls of points systems. If there’s something we can learn from the long history of points systems in the web2 world, they are marred by some deep-rooted challenges. For instance:

• Extrinsic motivation warps user behavior: Points systems encourage inorganic activity, resulting in projects deriving the wrong insights.

• Points systems change the type of users who adopt the product: They may attract reward hunters rather than true enthusiasts. Reward hunters often move on to the next product after the points program, leaving many projects in dire need of loyal users. 

Apart from these flaws, critics argue that points systems may exploit user engagement by luring individuals into performing specific actions for the promise of future rewards. Such practices are deemed as manipulative behavior, often targeting vulnerable users out to make a quick buck.

Ultimately, this undermines the fundamental ethos of autonomy and transparency on which web3 is built. As a result, ethical considerations surrounding the implementation and oversight of point systems remain essential to ensure the integrity of web3 projects.

Conclusion🧠

The adoption of points systems within protocols has emerged as a powerful tool for directing user behavior, attracting engagement, and driving growth. Protocols like Blur and Tensor have demonstrated the effectiveness of these systems in increasing market share, fostering user participation, and positioning themselves as leaders in their respective fields. 

However, while points systems offer clear benefits, they are not without controversy, with concerns about their potential for manipulation and exploitation. As the web3 landscape continues to evolve, it will be essential for projects to strike a balance between harnessing the potential of points systems for growth while addressing the ethical considerations and criticisms they may entail. 

The successful integration of points systems will hinge on their ability to align with user interests, promote transparency, and contribute positively to the broader web3 ecosystem.

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