Written by: Kenton, formerly worked at Maker
Compiled by: Yangz, Techub News
Driven by an innovative points system, a new era of Web3 digital loyalty is coming.
Since Blur pioneered the Points Program in 2022, teams have been adopting this new incentive mechanism. With each new Points Program, the imagination of incentive design is further expanded, and new reward mechanisms and incentive behaviors are constantly being explored. By 2024, the ecosystem of Points Projects has blossomed, and each project has added a unique color to the evolving Points Mechanism. The rapid development of the Points System has provided unprecedented opportunities for user activation and retention. However, it is not easy for new teams to master the complex "Points Economics".
Drawing on conversations with teams that have adopted point systems and an analysis of more than 20 point programs, this guide reveals the strengths, weaknesses, and real-world applications of point economics.
Part 1 covers the basics of points, while Part 2 provides a comprehensive overview of point economics in Web3.
Part 1: Introduction to integration
What are points?
At their core, a point is a digital reward unit that is valued for its utility or convertibility into a tangible benefit, whether it be exclusive access, product discounts, or direct monetary value. Projects strategically deploy point programs not only to foster loyalty, but also to drive product adoption, expand network effects, and shape user behavior in ways that accelerate product growth.
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 long-term use. A well-designed points program helps drive long-term user engagement and deepens emotional connections with users, both of which are the foundation of a product’s “moat.”
Generally speaking, both Web2 and Web3 companies/projects can benefit from the points program in the following ways:
Marketing: When used in conjunction with a referral program, points can broaden your marketing funnel.
Growth: Because points have value, they can reduce the effective price of your product/service, allowing points programs to increase conversion rates within the marketing funnel, thereby achieving growth in core KPIs such as the number of active users.
Stickiness/Loyalty: Points programs can increase user stickiness to the product, thereby increasing user lifetime value (LTV) and reducing user churn. Studies have shown that the average spending of loyal users is 27% higher, so when the average LTV exceeds the cost of loyal users, product stickiness is achieved.
Market timing: Dynamic points programs help bootstrap products with network effects, such as social media platforms and financial markets. By rewarding early adopters, companies can improve the product’s user experience long enough to meet market entry standards.
Users can also discover the utility of the points program in the following ways:
Incentive value: This value can be in the form of discounts, free products, exclusive access and benefits, and money.
Brand Identification: An effective loyalty program can go beyond transactional rewards and allow customers to feel the value and emotional connection of the brand. When customers have a psychological sense of belonging to the brand, loyalty reaches its peak.
Part 2: The “Integral Economics” of Web3 Protocols
Traditional points program
While points programs have been a mainstream incentive mechanism in Web2 for decades, their adoption in Web3 opens up new opportunities. We are familiar with airline loyalty programs (such as Delta SkyMiles) and credit card rewards (such as Chase Ultimate Rewards) in Web2. These programs have successfully promoted customer retention/spending, generating up to billions of dollars per year. Sometimes loyalty programs bring in more revenue than the company's core business! However, Web3 takes the concept of points to new heights.
Web3 Points Revolution
Blur pioneered the Web3 points program when it introduced its points program in 2022. Since then, many projects have followed suit, some with impressive scale.
For example, Eigenlayer has a TVL of $18 billion, and if its points program had a capital cost of 10% APR, the program would currently generate $1.8 billion worth of points per year. Other notable points programs include Ethena, LRT projects (EtherFi, Swell, Kelp), and Blast.
Unique advantages of Web3 projects
In addition to the general benefits, Web3 projects can also gain some unique advantages from the points program:
Early Incentives: Projects can launch points programs much faster than tokens. Projects can immediately use points to incentivize users, driving project growth from the start. In contrast, tokens require careful design, allocation planning, and timelines, which are difficult to prioritize during the release of the protocol. Tokens are also products, and cannot be rushed.
Token conversion potential: Points can be designed with the possibility of being converted into tokens in the future, thereby increasing their implied 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 their TGE schedule, airdrop allocations, and incentive structures without hindering growth. This flexibility enables teams to develop more effective go-to-market (GTM) strategies. Additionally, teams are free to adjust points programs compared to incentive programs that require governance approval. While token governance is an ideal outcome, in the early days, a team’s flexibility can be a competitive advantage.
Market Timing: Token launches tend to perform better in bull markets. Points programs allow 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 aren’t limited to the pre-TGE situation. Projects like Ethena and EtherFi have seen similar benefits from their Season 2 points programs, even after token launch.
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 points programs include behavioral rewards, base rewards, and boost rewards. In addition, some points programs have experimented with additional utility rewards.
Behavior Rewards
Behavior rewards detail user behaviors and actions that earn points, such as depositing on L2 or trading on a new AMM, including:
Holding unlocked assets, i.e. assets that users can freely deposit and withdraw (such as LRT, Pendle YT, Ethena sUSDe mortgage deposits on Morpho).
Holding locked assets, i.e. assets that users need to wait a period of time before they can withdraw (e.g. locked Ehtena USDe, Eigenlayer, Karak, and native staking on Symbiotic).
Providing liquidity. Like unlocking assets, but with the risk of passively selling deposited assets (e.g. Thruster LP positions collateralized by Hyperlock).
Social engagement, such as likes, retweets, comments, and follows.
Basic Rewards
The base rewards include the most important details of the points program, such as the release plan, timeline, and in some cases, the size of the airdrop. Most points programs have multiple points seasons, usually ranging from 3-6 months, each with unique base terms.
Points release schedule: the frequency and scale of points accumulated by point holders
One-time rewards: A one-time allocation of points for a specific action. Applicable to startup actions and marketing. For example, Blur’s one-time reward for listing an NFT within 14 days, Lyra’s one-time reward for participating in Twitter/X-Space events, and Napier’s rewards for social engagement and referrals.
Continuous Rewards
Fixed Supply Release: The total supply of credits is fixed for the entire program (e.g. Hyperliquid) or for a season (e.g. Morpho, which distributes non-transferable $MOPRHO tokens as rewards, but operates similarly to credit releases). While both can help reduce dilution for users, a fixed total supply provides the fewest unknowns, while a fixed unit supply allows teams to schedule releases more flexibly. Teams often use a fixed supply release base to provide additional assurance to users.
Variable emission (e.g. Eigenlayer, all major LRTs, Ethena, etc.). Total supply of credits varies based on TVL. Variable emission schedules dynamically dilute early participants as they participate, calculated in USD or ETH per day. While the perceived airdrop reward (in USD) will attract new deposits, participation must increase as total deposits grow to compensate for the churn. Teams prefer this emission schedule because it removes the operational complexity of ensuring a fair distribution of credits to all participants. To reduce dilution for the earliest users and create a sense of urgency, teams generally announce a decreasing accumulation rate schedule (e.g. 25 credits/day in July, 20 credits/day in August, etc.).
Duration: How long will the points be issued over?
Specificity vs. ambiguity: Most projects give a fixed points schedule/season duration (e.g. 6 months), but some projects give a range (e.g. 3-6 months). Teams that want more flexibility will choose a vague timeline, but this can also hinder project development.
Conditional distribution: Some points programs/seasons are designed so that if a key milestone is reached before the original end date, the program will be stopped. If the expected season airdrop allocation is fixed, it will increase the urgency for users to participate. For example, the milestone of Ethena's first season was $1 billion TVL, which was reached in seven weeks.
Improved rewards
Boost rewards are a pre-emptive lever for the team that provide a higher relative share of points to users with specific target behaviors. Here are a few different boost reward mechanisms:
Improve service quality: Projects can improve product quality for one user group (such as traders) by incentivizing the "service quality" of another user group (such as liquidity providers). For systems that can distinguish users by "service", such as Univ3 pools, projects can allocate points based on their contribution to the product user experience (such as liquidity). Blur provides more rewards to LPs whose quotes are closer to the NFT reserve price, while Merkl's incentive mechanism favors Univ3 LPs who quote more competitively and can earn more transaction fees.
User referral rewards: Refer other users to get a certain amount of points (such as 10%). This helps with marketing and acquiring high-net-worth users. However, since referrers can recommend their own addresses, there is a risk of Sybil attacks. Some projects require users to provide referral codes to get more marketing opportunities, but the conversion rate will decrease. For example, Ethena and Blackbird.
Phased referral rewards: An extension of the above referral system. Users can not only obtain part of the referrer's first-level points, but also obtain a certain share of the referrer's second-level points. Of course, this also has the risk of Sybil attacks. For example, Blur and Blast.
Base Rewards: Projects can set a rate of point accumulation to attract and cultivate user usage. The basic idea is that the user's base point accumulation rate will increase as the base usage increases, thereby obtaining rewards for the same usage at a faster rate. However, due to the limited capabilities of ordinary users, this mechanism is less attractive to them. Examples of this mechanism include Aevo, which has set up a base point improvement mechanism for traders.
Market launch boosts: Projects use launch boosts to attract liquidity and bootstrap a new market before network effects kick in. Launch boosts usually have a time limit, but other thresholds can also be explored. For example, some LRT projects (such as EtherFi) offer LPs a two-week launch bonus when initializing a new Pendle market.
Loyalty rewards: Give users extra points for being loyal to a product (i.e. proving they use product A over product B). This is particularly effective for products that rely on network effects; as competitors’ network share shrinks, the product’s relative value proposition gets an extra boost. Blur took advantage of this and quickly took market share from OpenSea after launch. This boost works better for NFTs due to their scarcity, especially when each person only owns one NFT from a series, forcing them to choose an allegiance; but with fungible tokens, users can spread their assets across any number of addresses to avoid unnecessary pressure.
Random rewards: This mechanism draws inspiration from Skinner's box experiment. Some projects add randomness to rewards in terms of reward size or time to attract more user participation and attention. Blur's care package reward system uses loyalty scores to determine the "luck" of rewards when issuing rewards. Although users do not know the absolute amount of the reward, they know the relative amount between each care package. Similarly, Aevo also uses this mechanism to improve the system. Any transaction of the user may get a transaction volume increase, thereby amplifying the transaction reward; both projects use a graded promotion system to get the highest reward increase with the lowest frequency (for example, a 1% chance of getting a 25x reward increase).
Leaderboard rewards: To encourage competition between users, the project will give additional rewards to the user with the highest score (such as 100 points). This concentrates the ownership of points in the hands of top users, but due to competition between users, this may lead to higher absolute KPI values. Blur used this promotion mechanism in the third season, but it was not widely marketed.
Native Token Lockup Rewards: Projects with existing native tokens will offer additional rewards to those who prove themselves to be long-term believers. Since this may reduce the circulating supply, teams should expect increased volatility in their tokens. Examples of this include Ethena’s ENA and Safe’s SAFE.
Cumulative TVL rewards: Projects can reward points based on TVL growth to incentivize user promotion and marketing. For example, 3Jane's AMPL-style points program redistributes point ownership as a function of TVL; Overload promises to increase airdrop allocations when certain TVL milestones are reached.
Group Rewards: Incentivize social pressure and coordination to get group-wide reward increases. AnimeChain pioneered this with Squads, a group that shares rewards with others.
Locking rewards: In addition to the base reward planning that decays for past sticky behavior, some projects have begun to experiment with additional rewards for future stickiness. For example, EtherFi's StakeRank rewards increased by 1-2 times in the second quarter, while Hourglass implemented 1-4 times rewards for locking liquidity for different periods.
Additional Utility Rewards
Finally, additional utility rewards are other direct benefits beyond the expectation of airdrops. Anticipation of future airdrops drives most of the demand for points, but some projects are also trying to provide additional utility to point holders, such as the ETH rev share provided by Rainbow Wallet to point holders.
Although this part is still small, I believe more teams will draw inspiration from Web2 mechanisms and try additional rewards for points holders, such as product fee discounts, event access, and other benefits.
Combination of different reward designs
The versatility of these building blocks allows for creative design of points programs. Once a team has identified a goal (user acquisition, product improvement, marketing, etc.), multiple building blocks can be combined sequentially or in parallel to achieve the greatest benefit. Here are some examples of creative use cases that go beyond the normal “deposit here” points strategy to increase TVL:
Ethena’s strategy is to issue points to USDe holders and increase the yield of sUSDe holders.
Napier’s strategy is to incentivize social engagement and other project asset holders to increase collaboration and expand marketing reach.
Blur’s GTM strategy leverages various points mechanisms across multiple airdrops to build supply and demand, and quickly gained market share in the NFT space when it was publicly released. By using random care package rewards, its high-level strategy is as follows:
User Acquisition: Airdrop 0 rewards private alpha testers to attract the most active NFT traders
Launch Supply: Airdrop 1 rewards existing NFT traders
Build supply from loyal users: Airdrop 2 is larger and has more rewards than Airdrop 1. In addition, this phase also provides additional rewards for loyal traders who move liquidity from other NFT markets to Blur.
Stimulating demand: Airdrop 3 rewards bidding to stimulate trading volume
Once a project has designed its points program and GTM, it turns its attention to the implementation of the program. Points accumulation calculations, data pipelines, price feeds, and points data storage are all part of the points program backend. Once the backend is complete, projects focus on consumer-facing implementations, typically a public dashboard that displays user points balances and points leaderboards. Many projects build these from scratch, but others outsource this work to development shops and other infrastructure providers.
When projects are ready for TGE and first airdrop, they will explore ways to distribute tokens to points holders. While airdrop mechanics are beyond the scope of this article, teams should consider airdrop tokens vs. options, fixed vs. dynamic allocations, linear vs. non-linear allocations, vesting, locking, protection against Sybil attacks, and allocation implementation. Interested readers can refer to this article.
Disadvantages of integration
Despite their effectiveness, points programs have not been without their critics. Points programs are a completely centralized incentive mechanism. The accumulation calculation of points, data storage, program schedules, and criteria are usually opaque and hidden from users, usually in an off-chain database. Therefore, projects must prioritize transparency as much as possible in order to build trust among their user base. If users cannot trust the terms of the points program, they will not value the points and will not rush to chase rewards.
Before the TGE, project owners usually cannot announce upcoming airdrops or distributions to points holders, but they can make efforts to communicate concisely, disclose plan adjustments in a timely manner, and quickly fix errors when they occur; EtherFi set an example in handling calculation errors.
In addition to centralization concerns, other shortcomings, such as stingy point distribution and susceptibility to Sybil attacks, are unfairly blamed on the points mechanism. In fact, this is precisely the fault of the airdrop mechanism. Points are just a way to accurately incentivize and record how much "points pie" users have, but it is the airdrop terms that determine how, when, and what the point holders get paid.
As we saw with Eigenlayer, users were not unhappy with their points allocation. They were unhappy with how much of the airdrop their points were redeemed for and the undisclosed claiming criteria. Point holders naturally felt ripped off when only 5% of the airdrop was earned for 11 months of deposits, as this share was far below the market average. In addition, many point holders were unexpectedly geo-blocked when claiming their $EIGEN. While the team has full discretion over token allocation, they could have easily avoided this issue in advance by geo-blocking the product. The same was true with Blast, where users were not unhappy with their points. Blast airdropped 7% of tokens to point holders and required the first 1,000 wallets to vest linearly over 6 months. For a project that is less than 6 months old, this is no different than other airdrops (such as Ethena, EtherFi, etc.).
While this is not a criticism of the project design, it can be seen from public forums and private discussions with DeFi whales that "points fatigue" has become increasingly serious. Understanding the value of points takes time and effort. For each new project, users need to build an initial model and constantly update their assumptions to ensure that they get the best return on their capital or behavior. As new points programs flood the entire ecosystem, it is difficult for users to keep up with the pace of projects, resulting in fatigue and running between points programs. For example, suppose you have two choices, 1,000 units/day of A points and 2 million units/day of B points, which one is more valuable? Is the more valuable option worth the risk of investment? The answer will not be clear at a glance. If the project party cannot immediately distinguish its own points program from all other programs, the influence of its points will be reduced.
The last important and rather insidious downside of points programs is that they can easily mask product-market fit (PMF). Points are a great bootstrapping mechanism, but have the potential to mask the organic interest that helps find product-market fit. Even after product-market fit is validated, 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 teams pre-PMF, I recommend introducing points after validating PMF in a closed alpha program. Post-PMF teams are trickier, but Mason recommends teams “take extra steps to ensure token rewards are used for organic usage and drive improvements in important metrics like engagement and retention.”
Future Outlook
Looking ahead, I expect points programs to continue to evolve to address the most pressing issues, such as program transparency and points fatigue.
To increase transparency of point supply, allocation logic, and accrual history, future point programs or parts of point programs will be implemented on-chain. Examples of this include 3Jane's AMPLOL and Frax's FXLT points. Stack, another point software provider, has also built infrastructure to manage on-chain point programs.
Addressing points fatigue is a more complex challenge than transparency. While discussions in private chats and CT tend to focus on differentiation in program design, the key to reducing fatigue may lie in giving users the ability to quickly and confidently assess the valuation of their points. This ability would greatly simplify comparisons between various points opportunities, making the decision to participate more straightforward and less overwhelming. While secondary markets (such as the Whale Market) are not part of the points program design, they can help users price points and reduce fatigue, although their liquidity is not sufficient to support most points exit strategies. As these markets mature, they are likely to become invaluable for price discovery, providing exit strategies, and creating a more vibrant points economy.
Summarize
In the Web3 ecosystem, points have become a powerful tool with advantages beyond traditional loyalty programs. Points enable projects to reward loyal and powerful users, guide network effects, and adjust market strategies in a more predictable way. This will lead to more efficient product development and ultimately bring value to end users.
As the field matures, I expect to see further innovation in the design and implementation of points programs. The key to success will be balancing transparency with flexibility and aligning points programs closely with overall program goals and user needs.
For builders and projects in the Web3 space, understanding and leveraging a well-designed points program is a critical factor in achieving sustainable growth. As we move forward, points will likely continue to be a fundamental component of cryptocurrency incentive structures, continuing to shape the landscape of DeFi and beyond.
