Author: Kenton
Compiled by: TechFlow
In Web3, a new era of digital loyalty is dawning, driven by innovative points systems. Since Blur launched its groundbreaking points program in 2022, teams have rushed to adopt this new incentive mechanism and take advantage of it. Each new points program has pushed the boundaries of incentive design, discovering new reward mechanisms and incentivized behaviors. By 2024, we have seen a diverse ecosystem of points programs flourish, with each project adding a unique flavor to the evolving points meta. This rapid development has created a rich reward mechanism and targeted behaviors, providing unprecedented opportunities for user activation and retention. However, for new builders, understanding the complexities of "points economics" can be a daunting task. This is about to change.
Drawing on conversations with points issuers and analysis of more than 20 points programs, this guide will uncover the benefits, pitfalls, and practical applications of points economics for both new and existing points issuers.
The first part will cover the basics of points, while the second part will provide a comprehensive overview of point economics in Web3.
Ready to level up your incentive program? Let’s get started.
Part 1: Introduction to Points
What are points?
Essentially, a point is a digital reward unit whose value lies in its utility or convertibility into a tangible benefit — whether it’s exclusive access, product discounts, or direct monetary value. Projects strategically deploy point programs not only to foster loyalty, but also to drive product adoption, amplify network effects, and shape user behavior in ways that accelerate product growth.
Points programs create a mutually beneficial relationship between brands and users. Companies gain loyalty, growth, and data through points programs, while users are rewarded for repeated use. A well-designed points program not only drives long-term engagement, but also deepens the user's emotional connection, which is critical to the competitiveness of the product.
In general, both Web2 and Web3 companies or projects can benefit from the points program in the following ways:
Marketing – When combined with a referral program, points can expand your marketing channels.
Growth – Because points provide added value, they reduce the effective price of a product or service, thereby increasing conversion rates in the marketing funnel and driving growth in core key performance indicators (KPIs), such as the number of active users.
Stickiness/Loyalty - Points programs can increase the stickiness of your product, which increases the lifetime value (LTV) of your users and reduces churn. Studies show that loyal members spend 27% more on average, so when the average LTV exceeds the cost of a loyal member, stickiness is achieved.
Market entry timing - Dynamic points programs can help launch products with network effects, such as social media platforms and financial markets. By rewarding early adopters, companies can improve the user experience (UX) before the product reaches critical mass.
Users can also get the following benefits from the points program:
Incentive Value – This value can come in the form of discounts, free products, exclusive access and privileges, and cash incentives.
Brand Identification - An effective loyalty program not only provides transactional rewards, but also makes customers feel valued and builds an emotional connection with the brand. The highest level of loyalty is when customers have a psychological sense of belonging to the brand.
Part II: The Protocol’s Integral Economics
Traditional Points Program
While points programs have existed in Web2 for decades, their adoption in Web3 introduces new dynamics and opportunities. In Web2, we are familiar with airline loyalty programs like Delta SkyMiles and credit card rewards like Chase Ultimate Rewards. These programs have successfully driven customer retention and spending, and are worth billions of dollars each year — sometimes the revenue generated by loyalty programs even exceeds that of a company’s core business! However, Web3 takes the concept of points to new heights.
Web3 Points Revolution
The first Web3 project to introduce points was Blur, which set off a chain reaction in the cryptocurrency space in 2022. Many projects followed suit, and some reached impressive scale.
For example, if Eigenlayer’s cost of capital on its $18b TVL is 10% APR, then its points program is issuing $1.8b worth of points per year. Other notable programs include Ethena, LRT programs (EtherFi, Swell, Kelp), and Blast.
Unique advantages of Web3 projects
In addition to the general benefits, Web3 projects gain several unique advantages from points programs:
Initial Incentives - Projects can launch a points program faster than tokens, allowing projects to provide user incentives immediately and drive growth from the beginning. Tokens require careful design, allocation planning, and timing considerations, which may be difficult to prioritize during the launch of the protocol. Tokens are also products and should not be rushed.
Token conversion potential - Points can be designed to be convertible into tokens in the future, which increases their implicit monetary value. This allows teams to effectively "borrow" liquidity from future Token Generation Events (TGEs) to fund current incentives.
Increased Flexibility - Points programs provide teams with the flexibility to adjust TGE schedules, airdrop allocations, and incentive structures without compromising growth. This flexibility enables more efficient market entry strategies. Additionally, teams are free to adjust points programs compared to incentive programs that require governance approval. While token governance is the ultimate goal, in the early stages, a team’s flexibility can be a competitive advantage.
Market Timing - Token launches are more effective during bull markets. The Points Program allows projects to build momentum and community during bear markets, preparing for a successful token launch when market conditions improve.
It’s worth noting that these benefits are not limited to the pre-TGE situation. Projects like Ethena and EtherFi have received similar benefits through their Season 2 points programs even after the token launch.
Points plan design
Points programs in Web3 have evolved into a variety of complex mechanisms, many of which are used in combination. The most effective programs include behavioral, basic, and boosting, and some are beginning to experiment with program rewards. Let’s take a deeper look at each one.
Planned Behavior
Planned behaviors describe in detail the user’s behavior and actions that will earn points, such as depositing on L2 or trading on the new AMM (Automated Market Maker). They include the following categories:
Holding unlocked assets - assets that users can freely deposit and withdraw (e.g. LRTs, Pendle YTs, Ethena sUSDe collateral deposits on Morpho)
Holding locked assets - assets that users need to wait a while before withdrawing (such as locked Ethena USDe, local re-staking on Eigenlayer, Karak, and Symbiotic)
Providing liquidity - similar to unlocking assets, but with the risk of passively selling deposited assets (e.g. Thruster LP positions staked in Hyperlock)
Social interactions - likes, reposts, comments and follows
Planning Basics
The program foundation includes the core details of the points program, such as the points distribution schedule, timeline, and airdrop size. Most points programs are divided into multiple seasons, each lasting 3-6 months, and each season has unique foundation terms.
Distribution schedule - describes how often and how many points are accumulated
Discrete Rewards - One-time points allocations for specific actions. Used for initiating behaviors and marketing. Examples include Blur’s one-time reward for listing an NFT within 14 days, Lyra’s one-time reward for attending a Twitter/X-space event, and Napier’s social interaction and referral rewards.
Continuous Rewards
Fixed supply emission - The total supply of credits is fixed for the entire program (e.g. Hyperliquid) or fixed for a period/season (e.g. Morpho*). While both reduce dilution for users, fixed program supply provides more certainty, while fixed period supply allows teams to be more flexible on emission schedules. Teams often use a fixed supply emission basis to provide additional assurance to users.
Variable emission - (e.g. Eigenlayer, all major LRTs, Ethena, etc.). The total supply is variable and adjusts based on TVL (total value locked). Points are calculated per day of participation in USD or ETH, and the variable emission schedule dynamically dilutes early depositors. While the expected airdrop rewards (in USD) attract new deposits, in order to avoid dilution, users must increase their participation in tandem with total deposits. The team likes this emission method because it simplifies the operational complexity of ensuring a fair distribution of points for all participants. To reduce dilution for the earliest users and to create a sense of urgency, the team releases a decreasing accumulation rate schedule (e.g. 25 points per day in July, 20 points per day in August, etc.).
Issue duration - the period during which points are issued
Explicit vs. fuzzy - Most projects give a fixed point schedule or season length (e.g. 6 months), but some give a range (e.g. 3-6 months). Some teams choose a fuzzy timeline to allow for more flexibility, even though this may affect growth.
Conditional - Some programs or seasons are designed to end early when a key milestone is reached. If the expected season airdrop allocation is fixed, this can add a sense of urgency to participate. For example, Ethena set a $1 billion TVL milestone in its first season and reached it in just seven weeks.
*Morpho operates similarly to a points issuer, although it is incentivized with non-transferable $MOPRHO tokens.
Plan to improve
Program promotion is the main tool used by the team to reward users for specific behaviors, giving users a higher relative share of points. The following are the various promotion mechanisms:
Improved Service Quality - Projects can improve the product experience for one user group (e.g., traders) by incentivizing the "service quality" of another user group (e.g., liquidity providers). For systems that can differentiate on "service," such as Univ3 pools, projects can assign points based on how much users contribute to the product's user experience (e.g., liquidity). For example, Blur rewards liquidity providers who quote closer to the NFT floor price, and Merkl's incentive mechanism favors Univ3 liquidity providers who quote competitively and earn more trading fees.
Referral - Refer others and receive a portion of their points (e.g. 10%). This helps with marketing and attracting big customers or high volume users. There is a risk of fake accounts as users may refer their own addresses. Some projects require a referral code to access the app to generate additional marketing buzz, although this may reduce conversion rates. Examples include Ethena and Blackbird.
Phased Referral Rewards - An extension of the simple referral system. Users can earn not only a share of their direct referrals' points (i.e. the first tier), but also a share of their referrals' points (i.e. the second tier). The goal is to encourage users to refer people who are expected to actively refer others. There is a risk of fake accounts, as users may refer their own addresses. Examples include Blur and Blast.
Base Boosts - Projects can add amplification boosts to attract and nurture heavy users. The basic idea is that your base point accumulation rate increases with usage, resulting in faster rewards for the same usage. Regular users may receive less compensation and be harder to attract. For example, Aevo offers a base volume boost for traders.
Market Launch Boosts - Projects use launch boosts to attract liquidity and launch new markets before network effects kick in. Launch boosts usually have expiration times, but can also have other thresholds. For example, some LRT projects (such as EtherFi) offer liquidity providers a two-week double launch boost every time they initialize a new Pendle market.
Loyalty boost - giving extra points to users who are loyal to a product (i.e. proving to use product A instead of B). Particularly effective for products that rely on network effects; when the network of competitors shrinks, the relative value of the product increases. Blur used this boost to quickly attract market share from OpenSea after launch. This boost is more effective for NFTs because their scarcity, especially when owners of a series typically only own one unit each, forces them to choose allegiance; however, with fungible tokens, users can spread their balances across multiple addresses to avoid undue pressure.
Randomized Reward Boosts - Drawing from the Skinner Box experiment, some projects use randomness in reward size or timing to attract more participation and attention. Blur's Care Package reward system uses loyalty points to determine the luck of rarity when awarding Care Packages. While users don't know the absolute reward size, they know the relative amount between each Care Package. Similarly, Aevo uses a "lucky" volume boost system, where any trade of a user has a chance to receive a volume boost, amplifying the reward of that trade; both projects use a tiered boost system, with the highest boosts awarded at the lowest frequency (e.g. 1% chance of receiving a 25x boost).
Leaderboard Boost - To encourage competition between users, programs offer leaderboard boosts to the top 100 point earners. This concentrates points in the hands of the top users, but can result in higher absolute KPIs because users are competing. Blur used this boost in season 3, albeit without much publicity.
Native Token Lockup Boosts - Projects with native tokens offer boosts to those point earners who demonstrate long-term belief. Because this may reduce the number of tokens in circulation, teams should expect increased volatility in their tokens. Examples include Ethena's $ENA, Safe, and $SAFE.
Total Value Locked (TVL) Increase - Projects can incentivize user advocacy and marketing by rewarding points that increase based on TVL growth. For example, 3Jane's AMPL-style points program rebalances point ownership based on changes in TVL, and Overload promises to increase airdrop allocations when certain TVL milestones are reached.
Team boost - Gain group-wide boosts by incentivizing social pressure and coordination. AnimeChain is the first project to try this approach, with its Squads group for sharing boosts with others.
Lockup Boosts - In addition to a decreasing scheduled base schedule (which rewards past stickiness and aims to get users on board early), some projects have begun experimenting with boosts that reward future stickiness. For example, EtherFi is offering 1-2x boosts to StakeRank in its second season and Hourglass is offering 1-4x boosts to liquidity locks for different maturities.
Program Rewards
Finally, planned rewards are other direct benefits beyond the anticipation of airdrops. Speculation about future airdrops drives most demand for points, but some projects are experimenting with providing additional utility to point holders, such as Rainbow Wallet’s ETH revenue sharing.
While this segment is currently small, I believe more teams will experiment with rewards for point holders, borrowing from Web2 mechanisms such as product fee discounts, event access, and other benefits.
Putting it all together
The flexibility of these building blocks allows for more creativity in points program design. Once a team has determined its goals (e.g. user acquisition, product improvement, marketing, etc.), it can combine multiple building blocks sequentially or in parallel to achieve maximum effect. Here are some innovative use cases that go beyond the traditional “deposits increase TVL” strategy:
Ethena’s strategy is to give points to USDe holders and increase the returns of sUSDe holders.
Napier’s strategy is to incentivize asset holders for social engagement and other programs to increase partnerships and expand marketing reach.
Blur’s Go-To-Market Strategy (GTM) leveraged various points mechanisms across multiple airdrops to quickly build supply and demand in the NFT market and quickly gain market share upon its public launch. Using random boost care packages, their high-level strategy is as follows:
User Acquisition - Airdrop 0 rewards to private alpha testers to attract the most active NFT traders
Launch Supply - Airdrop 1 Rewards New Listings for Existing NFT Traders
Build supply from loyal users - Airdrop 2 is larger than Airdrop 1, rewards more listings, and boosts loyal listers who move liquidity from other NFT marketplaces to Blur
Stimulating Demand - Airdrop 3 rewards competitive bidding to incentivize trading volume
After a project designs its points program and GTM, it turns its attention to program implementation. Points accumulation calculations, data pipelines, price feeds, and points data storage are all components of the points program backend. Once the backend is complete, projects focus on the user-facing implementation, typically a public dashboard that displays a user's points balance and points leaderboard. Many projects build their implementation from scratch, but others outsource the work to developers and other infrastructure providers.
Next, when projects prepare for TGE and first airdrop, they will explore how to distribute tokens to points holders. Although this article does not discuss the specific airdrop mechanism, teams should consider the following factors: airdrop tokens vs. options, fixed vs. dynamic allocation, linear vs. non-linear allocation, vesting period, lock-up, Sybil attack prevention, and allocation implementation. If you want to learn more, you can refer to this post for the latest information.
Criticisms and shortcomings of the points program
While point programs have proven to be effective, there are some criticisms. Point programs are completely centralized incentive mechanisms. Point accumulation calculations, data storage, program timelines, and criteria are usually not transparent to users and are usually stored in off-chain databases. Therefore, point issuers must be as transparent as possible to build trust with users. If users do not trust the terms of the point program, they will not value the points and will not actively participate.
For legal reasons, teams often cannot reveal upcoming airdrops or allocations to points holders before the token launch, but they can make up for this by communicating concisely, disclosing schedule changes promptly, and fixing bugs quickly. EtherFi is a great example of this in how it handled a calculation error.
Other public criticisms, such as airdrop distributions that are not generous to points holders and are vulnerable to Sybil attacks, are actually problems with the airdrop program, not the points program. Points are simply a tool used to incentivize and record the shares a user owns. The airdrop terms determine how, when, and how much points holders receive as rewards.
In the case of Eigenlayer, users were not unhappy with their points balances, but rather the percentage of points converted into airdrops and the undisclosed claiming criteria. With only 5% TGE earned after 11 months of deposit, point holders felt they were being taken advantage of, with returns far below the market average. Additionally, many point holders were unexpectedly geo-blocked and unable to claim their $EIGEN share. While the team has full discretion over token distribution, they could have avoided this issue by geo-blocking the product in advance. Blast is a similar story - users were not unhappy with their points balances. Blast airdropped 7% to point holders and required the top 1,000 wallets to partially lock up their holdings for 6 months. For a plan of less than 6 months, this is pretty consistent with other airdrop seasons (e.g. Ethena, EtherFi, etc.).
While this is not a criticism of program design, points fatigue is a growing problem in the ecosystem, reflected in both public forums and private discussions with DeFi whales. Understanding the value of points takes time and effort. For each new program, users need to build an initial model and continually update their assumptions to ensure they are getting the best return on capital or behavior. As new points programs flood the ecosystem, users struggle to keep up, leading to fatigue and sluggish migration between points programs. For example, imagine you have two options, earning 1,000 units of points per day with Point A and earning 2 million units per day with Point B - which is more valuable? Is the more valuable one still worth the risk of capital? The answer is not immediately clear. Projects that cannot immediately distinguish their points programs from others will have less impact from their points.
A final important and insidious side effect of points systems is that they can obscure product-market fit (PMF). Points are great bootstrapping mechanisms, but they run the risk of hiding the organic interest that is critical to finding PMF. Even after PMF is validated, teams still need to build enough organic traction to find sustainability for their product or service before tightening incentives. Mason Nystrom of Variant calls this the “hot start problem.” For teams that haven’t validated PMF yet, I recommend introducing points after validating PMF in a closed alpha program. For teams that have already validated PMF, it’s a little trickier, but Mason recommends teams “take extra steps to ensure token rewards are used for organic usage and drive important metrics like engagement and retention.”
Future Outlook
Looking ahead, I expect points programs will continue to evolve to address the most pressing issues, such as program transparency and points fatigue.
To increase transparency of total points supply, allocation logic, and accumulation history, future points programs or parts of them will be implemented on-chain. Examples of on-chain points implementations include 3Jane's AMPLOL and Frax's FXLT points. Another software provider that provides on-chain points management infrastructure is Stack.
Addressing points fatigue is a more complex challenge. While discussions in private chat and CT often focus on how to differentiate plan designs, the key to reducing fatigue may lie in enabling users to quickly and confidently assess points value. This ability will significantly simplify comparisons between various points opportunities, making participation decisions simpler and less confusing. While this is not part of the points program design, secondary markets such as the Whales Market can help price points and reduce fatigue for users, although there is currently insufficient liquidity to support most points exit strategies. However, as these markets mature, they are likely to become important in price discovery, providing exit strategies, and creating a more dynamic points economy.
in conclusion
Points have become a powerful tool in the Web3 ecosystem, providing benefits beyond traditional loyalty programs. They enable projects to reward loyal premium users, bootstrap network effects, and optimize their go-to-market strategies in a more predictable manner. This leads to more efficient product development and ultimately value for end users.
As this space matures, I expect innovation in the design and implementation of points programs will continue. The key to success will be finding a balance between transparency and flexibility, and closely aligning points programs with overall program goals and user needs.
For builders and projects in the Web3 space, understanding and leveraging the power of well-designed points programs can be a critical factor in achieving sustainable growth. As we move forward, points will likely continue to be a fundamental component of crypto incentive structures, continuing to shape the landscape of DeFi and beyond.