From Token to PointFi: Continued Optimization Exploration of Web3 User Incentives

The original author: Victoria, Metopia

In the Web3 field, adding financial attributes to various tracks (such as SocialFi, GameFi, NFTFi, ArtFi, etc.) is mainly to leverage the advantages of blockchain technology and decentralized finance (DeFi), promote assetization, incentive mechanisms, financing, liquidity, and autonomy, and empower these tracks with new economic models and application scenarios.

User incentives in the development of Web3 have undergone an evolution from tokens, whitelists, and credentials to task platform points and project-specific points. In the early years, tokens were often used to incentivize participant growth or loyalty, to capture value, or to provide various types of core product utility. Common token mechanics focused on one-time airdrops to incentivize participation and reward early users (such as Uniswap, ENS); to ongoing liquidity mining projects that reward users for performing certain actions (such as LooksRare, Compound). At the end of the NFT Summer, whitelist became popular in order to identify “family members” who were willing to contribute to the community and grow together. However, the term “whitelist” eventually became a stable low-cost arbitrage tool and a chip for excessive speculation by projects, leaving the NFT market in disarray with the arrival of the bear market. The explosive growth of task platforms and the popularity of the SBT concept have once again iterated on the incentive mechanisms of Web3, with countless on-chain and off-chain behaviors transformed into credentials stored in each wallet’s virtual space. If these credentials cannot be utilized effectively, they will ultimately become cyber signals as fleeting as snowflakes.

Incentives and Rewards

At the last turning point between bull and bear markets, L2 public chain Blast successfully led project teams to use Point for user incentives by introducing a points system with actual value. Recently, Linea seems to have followed this successful path. On May 17th, Linea launched the first phase of Volt on Linea Surge, aiming to drive the development of the ecosystem by attracting more users and increasing the Total Value Locked (TVL) on the network. Linea Surge is a points-driven program where users can earn LXP-L tokens by holding assets on Linea and deploying them to DeFi protocols on the network. On May 24th, Linea TVL surpassed $1.1 billion, reaching $1.12 billion, setting a new historical high with a 42.58% increase in just 7 days. One of the goals of the Linea Surge program is to increase the TVL on the network to drive the development of the ecosystem. Data shows that Linea TVL has significantly increased after the launch of the Surge program, surpassing $1.1 billion, already achieving one-third of the program’s goal (TVL of $3 billion).

Even around the incentive method of Point, a new track called PointFi has emerged, and Whales Market has become a leader in this field. Whales Market provides a new peer-to-peer primary market platform, allowing users to exchange tokens before the official token issuance. This includes a P2P points market - Whales Market uses smart contracts to facilitate on-chain transactions agreed upon by buyers and sellers. After the token is released, Whales Market will automatically convert points into corresponding tokens based on the foundation’s announcement. Point orders must be set in advance, but the exchange ratio for tokens will only be announced at the TGE. However, some users believe that this mechanism may result in the seller’s points far exceeding the value of the tokens they receive. This may imply that sellers face risks in the transaction because they cannot determine the value of the tokens in advance, and the quantity of points may far exceed the value of the tokens.

The prevalence of this incentive method reflects the project party’s urgency to improve user retention and engagement. However, as more and more point programs complete token exchanges, users and the market have begun to voice different opinions.

1. The proliferation of point systems: With more and more projects adopting point systems, some people are beginning to question whether this incentive model is truly effective. They are concerned that the point system may lead to the phenomenon of “toxic TVL,” attracting a large amount of funds, but not truly bringing in users or builders. In addition, some people believe that the point system leads to user behavior focusing more on obtaining points rather than making genuine contributions to the project.

2. Speculation and Bot Trading: Some voices point out that the emergence of the points system has attracted a large number of speculators and bot trading, leading to market bubbles and an unhealthy environment. Project teams utilize the points system to quickly gain users and transaction data, but these data may not be genuine or sustainable.

3. Regulatory and Compliance Challenges: With the increasing attention of regulatory agencies on the cryptocurrency market, projects are facing more compliance challenges. Some believe that the lack of clear regulatory rules has led to the abuse and confusion of the token system, making it difficult for investors to truly understand the content and risks they are exposed to.

4. User Attention Dispersion: With more and more projects adopting a points system, users’ attention may be dispersed, making it difficult for them to focus on specific projects or ecosystems. The points system becomes a means to attract user retention, but it may not necessarily bring long-term value and loyalty.

5. Some users question the input-output ratio: Points simplify the incentive logic of traditional interactive airdrops, but as the project side and user panel data gradually increase, users may have unclear profit calculations or be “flexibly” determined by the project side due to the increase in points, which may ultimately face ambiguous expectations for future airdrops. The “points do not mean profit commitments” often leads to a vacuum period from the end of the points activity to the realization of incentives, which is filled with various “noises” inside and outside the community.

Although the points system may bring short-term attention and funding to the project, it still requires the joint efforts and considerations of the project party, investors, and regulatory agencies to ensure that this incentive model can truly promote the healthy development and long-term sustainability of the ecosystem.

Solution - Long-term Incentive Mechanism

• Staged Rewards: Rewards are distributed in multiple stages, and users need to complete tasks in different stages to receive the full rewards. For example, recently, many projects such as Ether.fi, Renzo, and UXLINK have adopted staged airdrops. These projects generally announce the total amount of the first stage airdrop and future (vague) airdrop plans when announcing the airdrop eligibility to ensure continuous attention from the community users, and to attract seed users (which can be considered as the group covered by the first airdrop) for secondary dissemination of the project and profit expectations.

Staged reward case study sharing (using the Renzo project as an example):

Renzo distributes rewards in multiple phases through an Airdrop, and users need to complete tasks in different phases to receive all rewards.

Season 1

• Acquisition method: Users acquire points by minting and holding ezETH or providing liquidity.
• Reward Mechanism: Each holder of 1 ezETH receives 1 point per hour; by depositing 1 ezETH and 1 ETH in the DEX pool, 4 points are earned per hour.
• Additional Rewards: Early participants can receive additional rewards.

Season 2

• Start time: April 26th
• Method of acquisition: Continue holding or increasing ezETH balance, stake REZ to earn points.
• Reward mechanism: Additional points are provided to holders of ezETH in user wallets and supported ezETH DeFi integrations. Staking 5000 REZ can earn 1 point per hour.
• Additional Bonus: Participants in the first season who maintain or increase their ezETH balance in the second season will receive a 10% additional point bonus, and holders of the first season airdrop who maintain a daily average REZ staking balance greater than the airdrop amount can receive a 50% additional point bonus. All bonuses will take effect at the end of the second season.

This method not only motivates users’ long-term contributions, but also increases the project’s exposure by constantly introducing new news points.

• “Time Weighted” Loyalty Program: Establishing a “time-weighted” loyalty program that is different from traditional loyalty programs, where users’ long-term participation and contributions can accumulate points and also enjoy higher redemption bonuses.

Design scheme of time-weighted mechanism (taking SocialFi project as an example):

Due to the high cost of social migration, centralized social networks have a strong first-mover advantage in this field, and there are almost no successful projects. Social finance projects need to attract users and increase activity through other means. For example, Lenster, friend.tech, Farcaster, we can see that the financial attributes such as airdrops, incentives, and financing have a much greater impact than the social attributes of the applications themselves. So how can we better unleash the financial attributes of social products? Perhaps we can imagine a solution that is specifically designed to record user contributions for startup SocialFi projects. All of the user’s on-chain actions are recorded, including but not limited to the number of times and the time span of participation in the project, as well as the specific contribution details of each participation, such as content publishing, participation in discussions, and suggestions. The number of contributions and the time span will proportionally affect the number of points the user can accumulate. More frequent participation and long-term sustained contributions will receive more points rewards, while less frequent or shorter participation will receive fewer points rewards.

At the same time, it is also necessary to design a time-weighted ratio to determine the impact of the time span of user contributions on the reward points. For example, the points obtained when first participating may only account for a small portion of the total points after full participation. The time-weighted ratio can be adjusted based on specific circumstances to balance user incentives and project needs.

Example scenario:

• User A has been participating in the project for 1 year, consistently posting content and actively engaging in community discussions.
• User B only participated in project for 1 month and only published one piece of content. After learning about the airdrop snapshot time, they started to continuously publish content and actively participate in community discussions.
• If both user A and B actively interacted with the community and produced content in the months of July, August, and September of a year, the accumulated points for these three months would be almost equal. However, due to A’s significantly longer total contribution duration compared to B, according to the time-weighted mechanism, user A will receive a significantly higher proportion when redeeming points because user A has a higher participation frequency.

Some researchers also believe that the economic model of the project, such as GameFi, can motivate users to participate and contribute through social rules (such as achievement systems, ranking systems) and economic rules (such as point rewards, NFT rewards). Specifically, it can be divided into

1. Tasks and Achievement Rewards: Users can earn rewards by completing specific tasks or achieving goals, motivating them to participate more in the game.

2. Social Interaction: Encourage players to obtain rewards and enhance community stickiness through social interactions such as teamwork and competition.

3. Virtual Asset Trading: Allows players to trade NFTs and other virtual assets, which can bring points and even token profits.

Players’ actions and contributions in the game will directly affect the quantity and value of rewards they can obtain, that’s for sure. But how to allow highly active and highly contributing players to obtain more rewards, thereby gaining a more favorable position in the economic system, is a more worthwhile subject for research and experimentation.

In addition, it is also possible to consider introducing a lock-up mechanism similar to VC (tokens can only be exchanged for tokens within a specific period of time or after certain conditions are met) or design a gradual unlocking mechanism (users gradually unlock tokens within a period of time after the project goes live, which is beneficial for maintaining the value of tokens).

Conclusion:

Although the points system faces many challenges in its implementation, such as speculation, regulatory difficulties, and user attention diversion, through continuous optimization and innovation, Web3 projects are expected to find more efficient and fair incentive mechanisms. We have proposed phased rewards and time-weighted loyalty programs as new incentive mechanisms. The effective use of these methods can not only motivate long-term user contributions but also increase the project’s exposure by constantly introducing newsworthy points. At the same time, project parties can further design incentive systems that truly promote user participation and contributions by combining social and economic rules. In the future, with the joint efforts of all parties, the Web3 ecosystem will usher in a healthier and more sustainable development, bringing more value and opportunities to users and developers.