Translation: Blockchain in Vernacular
In the world of Web3, a new era of digital loyalty is emerging, powered by innovative points systems. Since Blur’s groundbreaking points program in 2022, teams have rushed to adopt this new incentive primitive and leverage its advantages. With the launch of each new points program, projects continue to advance in the incentive design space, discovering new reward mechanisms and incentivized behaviors. By 2024, a diverse ecosystem of points programs has flourished, each adding a unique color to the evolving points meta. This rapid evolution has created a rich landscape of reward mechanisms and targeted behaviors, providing unprecedented opportunities for user activation and retention. However, for new entrants, navigating the complexity of “points economics” can be daunting. This is about to change.
Based on conversations with points issuers and an analysis of more than 20 points programs, this guide reveals the strengths, criticisms, and practical applications of points economics for both new and existing issuers.
Part I covers the basics of integration, while Part II provides a comprehensive overview of integration economics in Web3. Let’s get started.
1. 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. Project teams strategically deploy point programs not only to foster loyalty, but also to drive product adoption, strengthen network effects, and accelerate product growth by shaping user behavior.
Why are points important?
Points programs create a mutually beneficial relationship between brands and users. Companies gain loyalty, growth, and data, while users are rewarded for repeat usage. Well-designed points programs help drive long-term engagement and deepen emotional connections, both of which are fundamental to product defensibility.
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 the marketing funnel.
Growth Because points provide value, they reduce the effective price of a product or service, allowing points programs to increase conversion rates within the marketing funnel, which in turn drives growth in core KPIs such as the number of active users.
Stickiness/loyalty points programs can increase product stickiness, leading to higher user lifetime value (LTV) and lower churn. Studies show that loyal members spend 27% more on average, so when the average LTV exceeds the cost of a loyal member, product stickiness is achieved.
Market Entry Timing Dynamic points programs can help products with network effects, such as social media platforms and financial markets, grow quickly. By rewarding early adopters, companies can improve the user experience before the product reaches critical mass.
Users can also find the following practical value through the points program:
Incentive Value This value can come in the form of discounts, free products, exclusive access and privileges, and money.
Brand IdentificationAn effective loyalty program goes beyond transactional rewards to make customers feel valued and emotionally connected to the brand.The pinnacle of loyalty is achieved when customers develop a sense of psychological ownership of the brand.
2. Part II: The Protocol’s Integral Economics
Traditional Points Programs While points programs have existed in the Web2 space 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 the company's core business! However, Web3 takes the concept of points to new heights.
The first Web3 project to introduce points was Blur in 2022, which triggered a chain reaction in the crypto space. Many projects followed suit, and some of them reached impressive scale.
For example, Eigenlayer’s points program will issue $1.8 billion worth of points each year if its $1.8 billion TVL (total locked value) has a 10% annualized capital cost. Other notable programs include Ethena, LRT programs (EtherFi, Swell, Kelp), and Blast.
In addition to the general benefits, Web3 projects gain several unique advantages from points programs:
Day one incentive programs can launch points programs faster than tokens. This allows projects to provide user incentives immediately, driving growth from the start. However, tokens require careful design, allocation planning, and time considerations that may be difficult to prioritize during the launch of a protocol. Tokens are also products and cannot 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 fine-tune TGE schedules, airdrop allocations, and incentive structures without hindering growth. This flexibility makes market entry strategies more effective. Additionally, unlike governance-approved incentive plans, teams are free to adjust points programs. While token governance is the ideal end game, a team’s flexibility can be a competitive advantage in the early stages.
Market Timing Tokens perform better in bull markets. Points programs allow projects to build momentum and community during bear markets, setting them up for a successful token launch when market conditions improve.
It’s worth noting that these benefits aren’t limited to the pre-TGE scenario. Projects like Ethena and EtherFi have captured similar benefits in their Season 2 points programs even after token launch.
3. Points plan design
Points programs in Web3 have evolved to include a variety of complex mechanisms, many of which are used in combination. The most effective programs include behaviors, bases, and boosts, and some are even beginning to experiment with program rewards. Let's explore each part in detail.
1) Planned Behavior
Program behaviors describe in detail the user’s behaviors and actions that can earn points, such as depositing on L2 or trading on a new AMM. They include:
Assets that users can freely deposit and withdraw (e.g. LRTs, Pendle YTs, Ethena’s sUSDe collateral deposits on Morpho).
Assets that users holding locked assets need to wait for a period of time before they can withdraw (such as locked Ethena USDe, native re-staking on Eigenlayer, Karak, and Symbiotic).
Providing liquidity is similar to unlocking assets, but with the risk of passively selling deposited assets (such as Thruster LP positions staked in Hyperlock).
Social interaction: like, forward, comment and follow.
2) Planning basis
The program foundation includes the most important details of the points program, such as the points distribution schedule, timeline, and sometimes the size of the airdrop. Most points programs are divided into different seasons, each of which usually lasts 3-6 months, and each season has unique basic terms.
Distribution Schedule The frequency and amount of points accumulated.
Discrete rewards are one-time points allocations for specific actions. Useful for startup behaviors and marketing. For example, Blur’s one-time reward for listing an NFT within 14 days, Lyra’s one-time reward for Twitter/X-space activities, and Napier’s social interaction and referral rewards.
Ongoing Rewards
Fixed Supply Emissions - The total supply of credits is fixed for the entire program (like Hyperliquid) or for a period/season (like Morpho*). While both reduce dilution for users, fixed program supply provides the fewest unknowns, while fixed period supply allows teams to be more flexible with their 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. Total supply is variable and is a function of TVL. Participants accrue a certain amount of USD or ETH points per day, and the variable emission schedule dynamically dilutes early depositors. While the expected airdrop payout (in USD) attracts new deposits, users who wish to eliminate dilution must increase participation in tandem with total deposit growth. Teams like this emission schedule because it removes the operational complexity of ensuring a fair distribution of points for all participants. To reduce dilution for the earliest users and create a sense of urgency, teams release a decreasing accumulation rate schedule (e.g. 25 points per day in July, 20 points per day in August, etc.).
Time schedules the duration of the points issuance.
Explicit vs. Ambiguous - Most projects give fixed points/season deadlines (e.g. 6 months), but some give ranges (e.g. 3-6 months). Teams that want extra flexibility will choose ambiguous timelines, even though this may hinder growth.
Conditional - Some programs/seasons are designed to end early when a key milestone is reached. If the expected season airdrop allocation is fixed, this can increase the sense of urgency to participate. For example, Ethena set a milestone of $1 billion TVL in season 1 — which was reached in just seven weeks.
* While Morpho distributes non-transferable $MOPRHO tokens as incentives, it operates similarly to a points issuer.
3) Plan enhancement
Program enhancements are levers that the team adjusts to reward users for specific, targeted behaviors, giving them a higher relative share of points. Here is a list of the different enhancement mechanisms:
Quality of Service Enhancement Projects can improve product quality for one user group (e.g., traders) by incentivizing the "quality of service" of another user group (e.g., liquidity providers). For systems where users can differentiate on "service," such as Univ3 pools, projects can assign points based on their contribution to the product's user experience (e.g., liquidity). For example, Blur rewards LPs whose quotes are closer to the NFT reserve price, and Merkl's incentive mechanism favors Univ3 LPs who quote competitively and earn more trading fees.
Referrals Refer others and receive a portion of their points (e.g. 10%). This helps with marketing and attracting whales/high volume users. But there is also a risk of Sybil attacks as they may refer their own addresses. Some projects require a referral code to access the app to generate additional marketing buzz, although conversion rates will drop. Examples include Ethena and Blackbird.
Tiered Recommendation Enhancement is an extension of the simple recommendation system. Users receive a share of points not only from their recommenders (i.e. the first layer), but also from their recommenders' recommenders (i.e. the second layer). The goal is to encourage users to recommend people who are expected to actively recommend others. There is also a risk of Sybil attacks, as they may recommend their own addresses. Examples include Blur and Blast.
Base enhancement programs can add amplification enhancements to attract and cultivate high-frequency users. The basic idea is that the base point accumulation rate increases as the base usage increases, thereby earning rewards at a faster rate. Non-high-frequency users will receive less compensation and be difficult to attract. For example, Aevo provides traders with base volume enhancements.
Market Launch Boosts Projects use launch boosts to attract liquidity and launch new markets before network effects kick in. Launch boosts typically have expiration dates, but other thresholds can also be explored. For example, some LRT projects (such as EtherFi) offer LPs a 2x launch boost for two weeks when initializing a new Pendle market.
Loyalty enhancements give extra points to users who commit to using a product (i.e. prove using product A over B). They work especially well for products that rely on network effects; when the network of competitors shrinks, the product’s relative value proposition gets an extra boost. Blur used this enhancement to quickly attract market share from OpenSea after launch. This enhancement works better for NFTs because their scarcity, especially when owners of a collectible typically own one unit each, forces them to choose loyalty; but with fungible tokens, users can spread their balances across multiple addresses to avoid undue pressure.
Random Reward Enhancement Drawing inspiration from Skinner box experiments, some projects attract more participation and attention through uncertainty in reward size or timing. Blur's Care Package reward system uses a loyalty score to determine the rarity luck to reward care packages. Although users do not know the absolute reward size, they know the relative quantity between each care package. Similarly, Aevo uses a "lucky" transaction volume enhancement system, where any one of the user's transactions may hit a transaction volume enhancement, thereby amplifying the reward of that transaction; both projects use a tiered enhancement system, with the highest enhancements awarded at the lowest frequency (such as a 1% chance of getting a 25x enhancement).
To encourage competition between users, the project has set up leadership enhancements for the top 100 point earners, etc. This concentrates point ownership among the top users, but this may result in higher absolute key performance indicators as users compete. Although it was not widely publicized, Blur used this enhancement in season 3.
Native Token Lockup Enhancements Projects with native tokens offer enhancements 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 the token. Examples include Ethena’s $ENA and Safe’s $SAFE.
Total value locked (TVL) enhancement projects can incentivize user advocacy and marketing by rewarding points enhancements based on TVL growth. Examples include 3Jane, whose AMPL-style points program resets point ownership based on TVL, and Overload, which promises increasing airdrop allocations when certain TVL milestones are reached.
Group enhancement incentivizes social pressure and coordination to obtain group-wide enhancement. AnimeChain is the first project to try to share enhancements through Squads.
In addition to a decaying scheduled base schedule (which rewards past stickiness and aims to get users on board early), some projects are beginning to experiment with enhancements that reward future stickiness. Examples include EtherFi’s StakeRank 1-2x enhancements and Hourglass’s 1-4x enhancements to various maturity liquidity locks.
4) Plan Rewards
Finally, planned rewards are other immediate benefits beyond the expectation of airdrops. Speculation about future airdrops drives most demand for points, but some projects are trying to provide additional utility to point holders, such as the ETH share that Rainbow Wallet provides to point holders.
Although this segment is still small, I believe more teams will borrow Web2 mechanisms such as product fee discounts, event access, and other benefits to experiment with rewards for points holders.
5) Putting it all together
The versatility of these building blocks allows for creative points program design. Once a team has clarity on its goals (user acquisition, product improvement, marketing, etc.), it can combine multiple building blocks in sequence or in parallel to achieve maximum effect. Here are some creative use cases that go beyond the traditional “deposit here” points strategy to increase TVL:
Ethena works by providing points to USDe holders and increasing returns for sUSDe holders.
Napier incentivizes social engagement and asset holders of other projects to increase partnerships and marketing reach.
Blur’s GTM strategy leverages various points mechanisms across multiple airdrops to quickly build supply and demand in the NFT market space and quickly gain market share upon public launch. Using randomly enhanced care packages, its 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 provides enhancements to 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 go-to-market plan, it will move on 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, the project will focus on the consumer-facing implementation, typically a public dashboard that displays a user's points balance as well as a points leaderboard. Many projects build their implementation from scratch, but some outsource the work to development companies and other infrastructure providers.
Next, when projects are ready for token generation and the first airdrop, they will explore ways to distribute tokens to their points holders. While this article does not cover airdrop mechanics, teams should consider airdrop tokens vs. options, fixed vs. dynamic allocations, linear vs. non-linear distributions, vesting, lock-ups, Sybil prevention, and distribution implementation. Those who want to learn more can refer to this article for the latest information.
6) Criticisms and shortcomings of the points system
While points programs have proven to be effective, they are not without their share of objections. Points programs are a completely centralized incentive mechanism. Points accumulation calculations, data storage, program timelines, and criteria are usually opaque to users and are typically stored in off-chain databases. Therefore, points issuers must prioritize transparency as much as possible to build trust with their user base. If users cannot trust the terms of a points program, they will not value the points and will rush to chase temptation.
Often, teams that reserve tokens cannot disclose upcoming airdrops or allocations to points holders for legal reasons, but they can invest in concise communication, timely disclosure of schedule adjustments, and rapid fixes when errors occur. EtherFi sets a good example in handling calculation errors.
Other public criticisms, such as airdrop allocations that are not generous to point holders and are vulnerable to Sybil attacks, are actually unfairly blaming the point program, when the real problem lies with the airdrop program. Points are just a way to incentivize and record exactly how many "point shares" a user has. The airdrop terms determine when, how, and what point holders get paid.
As we saw with Eigenlayer, users were not unhappy with their points balances. They were unhappy with the percentage of points converted to airdrops and the undisclosed claiming criteria. With only 5% of the TGE available for deposits over an 11-month period, points holders felt like they were being “farmed” and earning well below the market average at the time. Additionally, many points holders were unexpectedly geo-blocked and unable to claim their $EIGEN share. While the team has full discretion over token distribution, they could have easily avoided the latter issue by geo-blocking the product beforehand. The same thing happened with Blast — users were not unhappy with their points balances. Blast airdropped 7% of tokens to points holders and required 6 months of partial vesting for the first 1,000 wallets. For a schedule of less than 6 months, this is in line with other airdrop seasons (e.g. Ethena, EtherFi, etc.).
While not a criticism of program design, points fatigue is growing in the ecosystem, as can be seen in 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 lazy migration between points programs. For example, imagine you have two options, 1,000 units/day of points A vs. 2 million units/day of points B - which is more valuable? Is the more valuable one still valuable enough to risk capital on? The answer is not immediately clear. Projects that cannot immediately distinguish their points program from all others will have less impact from their points.
A final important and rather insidious side effect of points systems is that they tend to mask product-market fit (PMF). Points are great bootstrapping mechanisms, but they run the risk of masking the organic interest that is so critical in finding PMF. Even after validating PMF, teams need to build enough organic traction to find sustainability in their product/service before tightening incentives. Mason Nystrom of Variant calls this the “hot start problem.” For pre-PMF teams, I recommend introducing points after validating PMF in a closed alpha program. For post-PMF teams, it’s a little more complicated, but Mason recommends teams “take extra steps to ensure token rewards are used for organic usage and drive important metrics like engagement and retention.”
7) Future Outlook
Looking ahead, I expect points programs will evolve to address the most pressing issues, such as program transparency and points fatigue.
To bring greater transparency in total point supply, allocation logic, and cumulative history, future points programs or parts of them will exist on-chain. Examples of on-chain point implementations include 3Jane's AMPLOL and Frax's FXLT points. Another points software provider is Stack, which has built infrastructure to manage on-chain point programs.
Addressing integral fatigue presents a more complex challenge. While discussions in private chats and social media often focus on differentiating program design, the key to reducing fatigue may lie in giving users the ability to quickly and confidently assess the value of points. This ability will significantly simplify comparisons of various points opportunities, making participation decisions simpler and less overwhelming. Although not part of the points program design, secondary markets such as Whales Market can help users price points and reduce fatigue, although it is not yet powerful enough to support most points exit strategies. However, as these markets mature, they are likely to become invaluable for price discovery, providing exit strategies, and creating a more dynamic points economy.
4 Conclusion
Points have become a powerful tool in the Web3 ecosystem, providing benefits beyond traditional loyalty programs. They enable projects to reward loyal power users, guide the development of network effects, and fine-tune their go-to-market strategies in a more predictable way. This will lead to more efficient product development and ultimately create value for end users.
As this space matures, I expect to see further innovation in points program design and implementation. The key to success will be striking 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 a well-designed points program can be a critical factor in achieving sustainable growth. As we move forward, points will likely continue to serve as a fundamental component of crypto incentive structures, continuing to shape the landscape of DeFi and beyond.