Author: kenton.eth Source: mirror Translation: Shan Ouba, Golden Finance
Driven by innovative points systems, Web3 has ushered in a new era of digital loyalty. Since Blur's pioneering points program in 2022, teams have adopted new incentive primitives and leveraged their advantages. With the launch of each new points program, projects push the incentive design space further, discovering new reward mechanisms and incentivized behaviors. By 2024, a diverse ecosystem of points programs has flourished, each adding a unique flavor to the evolving points metadata. This rapid development has created a rich reward mechanism and target behavior, providing unprecedented opportunities for user activation and retention. However, it can be daunting for new builders to navigate the complexity of "points economics." This is about to change.
Through conversations with points issuers and analysis of over 20 points programs, this guide reveals the benefits, criticisms, and practical applications of points economics for both new and existing points issuers.
Section 1 provides a primer on points, while Section 2 provides a comprehensive overview of point economics in Web3.
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At their core, points are digital reward units whose value is determined by their utility, or ability to be converted into a tangible benefit — whether that’s exclusive access, a product discount, or direct monetary value. Projects strategically deploy points 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.
Point programs create a mutually beneficial relationship between brands and users. Companies gain loyalty, growth, and data, while users are rewarded for repeat use. A well-designed points program helps drive long-term engagement and deepen emotional connections, both of which are fundamental to product defensibility.
Overall, both Web2 and Web3 companies/projects can benefit from points programs in the following ways:
Marketing - When combined with referral programs, points can expand the marketing funnel.
Growth - Because points have value, they reduce the effective price of the product/service, allowing points programs to increase conversion rates within the marketing funnel, leading to growth in core KPIs such as number of active users.
Sticky/Loyalty - Points programs can increase product stickiness, which can increase user lifetime value (LTV) and reduce churn. Studies have shown that loyalty members spend 27% more on average, so product stickiness is achieved when the average LTV exceeds the cost of the loyalty member.
GTM Timing - Dynamic points programs can 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 over the long term to achieve critical mass.
Users can also find points programs useful through:
Incentive Value - This value can be in the form of discounts, free products, exclusive access and benefits, and money.
Brand Appreciation - Effective loyalty programs go beyond transactional rewards to make customers feel valued and emotionally connected to the brand. Loyalty peaks when customers feel a psychological sense of belonging to the brand.
While points programs have been a staple of 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/spending and are worth billions of dollars per year - sometimes loyalty programs bring in more revenue than a company's core business! However, Web3 has taken the concept of points to new heights.
The first Web3 project to introduce points was Blur in 2022, which set off a chain reaction in the crypto space. Many projects followed suit, with some reaching impressive scale.
For example, if Eigenlayer’s points program has a TVL of $18 billion and its cost of capital is 10% APR, then the program would currently generate $1.8 billion worth of points per year. Other notable programs include Ethena, LRT programs (EtherFi, Swell, Kelp), and Blast.
In addition to the general benefits, Web3 projects can gain several unique advantages from points programs:
Day 1 Incentives — Projects can launch points programs faster than tokens. This allows projects to offer user incentives immediately, driving growth from the start. However, tokens require careful crafting, allocation planning, and time considerations, which can be difficult to prioritize during a protocol launch. Tokens are also products and cannot be rushed.
Token Convertibility - Points can be designed to be convertible to tokens in the future, increasing their implied monetary value. This allows teams to effectively "borrow" liquidity from their future Token Generation Event (TGE) to fund current incentives.
Increased Flexibility - Points programs provide teams with the flexibility to fine-tune token issuance timelines, airdrop allocations, and incentive structures without hindering growth. This flexibility makes go-to-market (GTM) strategies more effective. Additionally, teams have the freedom to adjust point programs compared to governance-approved incentive plans. While token governance is an idyllic ending, team agility can be a competitive advantage in the early stages.
Market Timing - Token issuances tend to perform better in bull markets. Points programs allow projects to build momentum and community during bear markets, leading to a successful token issuance when market conditions improve.
It’s worth noting that these benefits aren’t limited to pre-token launch scenarios. Projects like Ethena and EtherFi have already achieved similar benefits through their Season 2 points programs, even after token launch.
Points programs in Web3 have evolved to include a variety of complex mechanisms, many of which are used in combination. The most effective programs are behavioral, foundational, and boosted, and some have begun experimenting with program rewards. Let’s take a deeper look at each one.
Program Behaviors detail the behaviors and actions for which users earn points, such as depositing on L2 or trading on a new AMM. They include:
Holding unlocked assets - assets that users can deposit and withdraw freely (e.g. Ethena sUSDe collateral deposits on LRT, Pendle YT, Morpho)
Holding locked assets - assets that users need to wait a while before withdrawing (e.g. locked Ehtena USDe, native re-staking on Eigenlayer, Karak, and Symbiotic)
Providing liquidity - just like unlocking assets, but with the risk of passively selling deposited assets (e.g. Thruster LP positions staked in Hyperlock)
Social engagement - likes, retweets, comments, and follows
Establishment Schedule - How often and how many points holders receive
Fixed Supply Issuance - The total supply of points is fixed for the entire program (e.g. Hyperliquid) or for a period/season (e.g. Morpho*). While both reduce dilution for users, fixed scheduled supply offers the fewest unknowns, while fixed period supply allows teams to be more flexible in their issuance schedule. Teams often use fixed supply issuance bases to provide additional assurance to users.
Variable issuance - (e.g. Eigenlayer, all major LRTs, Ethena, etc.). Total supply is variable and is a function of TVL. Variable issuance plans accumulate per $ or ETH that participate at a point in time, dynamically diluting early depositors. While the perceived airdrop payout (in USD) attracts new deposits, users who want to eliminate dilution must increase participation in sync with total deposit growth. The team likes this issuance schedule because it removes the operational complexity of ensuring a fair distribution of points to all participants. To reduce dilution for the earliest users and create a sense of urgency, the team will release a decreasing accumulation rate schedule (e.g. 25 points/day in July, 20 points/day in August, etc.).
Discrete rewards - one-time distribution of points for specific actions. Helps with startup behavior and marketing. Examples include Blur’s one-time reward for listing an NFT within 14 days, Lyra’s one-time reward for attending Twitter/X-Space events, and Napier’s rewards for social engagement and referrals.
Ongoing rewards
Time - how long points are awarded
Explicit vs. vague - Most projects give a fixed points program/season duration (e.g. 6 months), but some give a range (e.g. 3-6 months). Teams that want more flexibility will choose a vague timeline, even if it may hinder growth.
Conditional - Some programs/seasons are designed to end early if key milestones are reached before the original end date. If the expected seasonal airdrop allocations are fixed, then this will increase the urgency to participate. For example, Ethena achieved a $1 billion TVL milestone in Season 1 — which was achieved in a remarkable seven weeks.
* While Morpho distributes non-transferable $MOPRHO tokens as an incentive, it operates in a way that mimics a points issuer.
Scheduled Boosts are the first lever the team adjusts, which provide a higher relative share of points to users for specific, targeted behaviors. Here is a list of different boost mechanisms:
Quality of Service Boosts — Projects can improve the quality of the product 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 differ in “service”, such as Univ3 pools, projects can assign points based on how much they contribute to the product’s UX (e.g. liquidity). For example, Blur offers more rewards to LPs that quote closer to the NFT floor price, while Merkl’s incentives favor Univ3 LPs that quote competitively and earn more trading fees.
Referrals - Refer others and earn a portion of their points (e.g. 10%). This helps with marketing and incentivizing whales/high volume users. There is sybil risk because they can refer their own addresses. Some projects will require a referral code to access the app to generate additional marketing buzz, but usage will decline. Examples include Ethena and Blackbird.
Phase-based referral boost - An extension of the simple referral system. Users can earn a portion of the referrer’s points not only for the referrer (i.e. level 1), but also for the referrer’s points (i.e. level 2). The goal is to encourage users to refer others who are expected to actively refer. There is sybil risk because they can recommend their own addresses. Examples include Blur and Blast.
Base Boosts - Projects can add amplification boosts to attract and cultivate power users. The basic idea is that your base point accumulation rate increases as base usage increases, allowing you to get rewards for the same usage at a faster rate. Non-power users are undercompensated and difficult to attract. For example, Aevo offers a base volume boost to traders.
Market Launch Boosts - Projects will use launch boosts to attract liquidity and bootstrap new markets before network effects kick in. Launch boosts typically have an expiration date, but other thresholds can be explored. For example, some LRT projects (such as EtherFi) use a 2x two-week launch boost for LPs when a new Pendle market is initialized.
Loyalty Boost - Give extra points to users who pledge allegiance to a product (i.e. can prove using product A instead of B). This is particularly effective for products that rely on network effects; when competitors’ networks shrink, the product’s relative value proposition gets an extra boost. Blur used this boost to quickly take market share from OpenSea after launch. This boost is more effective for NFTs due to their scarcity, especially when owners of collectibles typically own one unit each, forcing them to choose allegiance; however, with fungible tokens, users can spread their balances across any number of addresses to avoid undue pressure.
Random Reward Boost - Taking inspiration from Skinner Box experiments, some projects incorporate reward randomness into reward size or timing to attract more engagement and attention. Blur’s Love Pack reward system uses loyalty points to determine the rarity *luck* of awarding a Love Pack. While users don’t know the absolute reward size, they know the relative amounts between each Love Pack. Similarly, Aevo uses a "lucky" volume boost system where any trade by a user may receive a volume boost, amplifying the rewards for that trade; both projects use a tiered boost system, with the highest boosts awarded with the lowest frequency (e.g., 1% chance of a 25x boost).
Leadership Boosts - To encourage competition between users, projects offer leadership boosts to the top 100 users (e.g., 100 points). This concentrates point ownership in the hands of top users, but can result in higher absolute KPIs as users compete. While not marketed much, Blur used this boost in Season 3.
Native Token Lockup Boosts - Projects with existing native tokens will provide boosts to point recipients who demonstrate a long-term commitment of faith. Since this may reduce outstanding float, teams should expect increased volatility in their tokens. Examples include Ethena, $ENA, and Safe, $SAFE.
Overall TVL boost - Projects can incentivize user advocacy and marketing by rewarding points boosts based on TVL growth. Examples include 3Jane, whose AMPL-style points program rescales points ownership as a function of TVL, and Overload, which promises increasing airdrop allocations upon reaching certain TVL milestones.
Group boost - Incentivize social pressure and coordination to gain group-wide boosts. AnimeChain was the first to try this with Squads, a group for sharing boosts with others.
Locked-in value - In addition to decaying scheduled base plans (which reward past stickiness and aim to get users on board early), some projects have begun experimenting with value-added rewards for future stickiness. For example, EtherFi’s StakeRank value increased by 1-2x in Season 2, and Hourglass’s liquidity lock value increased by 1-4x, with varying durations.
Finally, in addition to the anticipation of airdrops, program rewards are also other direct benefits. Speculation about future airdrops drives much of the demand for points, but some projects are experimenting with providing additional utility to point holders, such as Rainbow Wallet’s ETH revenue share for point holders.
While this component is still small, I believe more teams will experiment with point holder rewards, drawing inspiration from Web2 mechanisms, such as product fee discounts, event access, and other benefits.
The versatility of these building blocks allows for creative design of point programs. Once a team has identified a goal (user acquisition, product improvement, marketing, etc.), multiple building blocks can be combined in sequence or in parallel for maximum efficiency. Here are some examples of creative use cases that can increase TVL beyond the normal “deposit here” points strategy:
Ethena’s strategy is to give USDe holders points, increasing the yield of sUSDe holders.
Napier’s strategy is to incentivize social participation and asset holders of other projects to increase partnerships and expand marketing.
Blur’s GTM strategy leverages various points mechanisms across multiple airdrops to build supply and demand and quickly gain market share in the NFT market space upon public launch. By using random boost care packages, their high-level strategy is as follows:
User acquisition - Airdrop 0 rewards private alpha testers to attract the most active NFT traders
Kickstart supply - Airdrop 1 rewards new listings from existing NFT traders
Build supply through loyal users - Airdrop 2 was larger than Airdrop 1, rewarded more listers and boosted loyal listers who moved liquidity from other NFT marketplaces to Blur
Stimulate demand - Airdrop 3 incentivizes trading volume through competitive bidding
After the project designs the 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 will focus on consumer-facing implementations, typically a public dashboard showing user points balances and points leaderboards. Many projects are building implementations from scratch, but some have outsourced the work to development shops and other infrastructure providers.
Next, when projects are ready for a TGE and first airdrop, they will explore ways to distribute tokens to points holders. While this post does not include airdrop mechanics, teams should consider airdrop tokens vs. options, fixed vs. dynamic allocations, linear vs. non-linear distributions, vesting, lock-ups, Sybil attack prevention, and distribution implementation. Those interested in learning more can refer to this post for a quick overview.
While points programs have proven to be effective, there are also a number of criticisms. Points programs are a completely centralized incentive mechanism. Points accumulation calculations, data storage, program timelines, and criteria are often opaque, hidden from users, and usually stored in off-chain databases. Points issuers must therefore prioritize transparency as much as possible to build trust with their user base. If users don’t trust the terms of a points program, they won’t value the points and will rush to chase rewards.
While pre-TGE teams are often unable to disclose the existence of upcoming airdrops or distributions to point holders for legal reasons, they can invest in concise communication, timely disclosure of program adjustments, and rapid fixes when errors occur; EtherFi sets a good example in handling calculation errors.
Other public criticisms, such as unfair distributions to point holders and airdrop distributions that are vulnerable to Sybil attacks, unfairly put the blame on the points program when it is actually the airdrop program’s fault. Points are simply a way to incentivize and record exactly how much of the “points pie” a user has. The airdrop terms dictate how, when, and what point holders are paid.
As we saw with Eigenlayer, users are not unhappy with their point balances. What they were unhappy about was how much of the airdrop their points converted into and the undisclosed claim criteria. Point holders felt like they were being farmed, earning 5% TGE on their deposits for 11 months, and the income was far below the market average at the time. 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 easily avoided the latter issue in advance by geo-blocking the product. The same was true for Blast — users were not unhappy with their point balances. Blast airdropped 7% to point holders and asked the top 1,000 wallets to partially cash out within 6 months. For a program 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 the program design, point fatigue is a growing problem in the ecosystem, as seen in public forums and private discussions with DeFi heavy users. Understanding the value of points takes time and effort. With 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 slow migration between points programs. For example, suppose you have two options, 1,000 units/day of points A and 2 million units/day of points B — which one is more valuable? Is the more valuable one still worth your risk? The answer is unclear. Projects that cannot immediately distinguish their points program from all others will have less impactful points.
The last important and rather insidious side effect of points systems is that they tend to mask product-market fit (PMF). Points are a great bootstrapping mechanism, but they can hide 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/service before tightening incentives. Mason Nystrom of Variant calls this the “hot start problem.” For pre-PMF teams, I recommend validating the introduction of points after the PMF in a closed alpha program. Post-PMF teams will encounter some thorny issues, but Mason recommends teams “take extra steps to ensure token rewards are used for organic usage and drive important metrics like engagement and retention.”
Going forward, I expect points programs to evolve to address the most pressing issues, such as program transparency and points fatigue.
To increase transparency into total points supply, allocation logic, and accumulation history, future points programs, or portions of them, will exist on-chain. Examples of on-chain points implementations include AMPLOL by 3Jane and FXLT Points by Frax. Another points software provider is Stack, which has built infrastructure to manage on-chain points programs.
Addressing points fatigue is a more complex challenge. While discussions in private chats and CT often focus on differentiating program design, the key to reducing fatigue may lie in enabling users to quickly and confidently assess point valuations. This ability would greatly simplify comparisons between various point opportunities, making participation decisions more straightforward and less overwhelming. While not part of the point program design, secondary markets such as the whale market can help users price points and reduce fatigue, although its liquidity is not sufficient to support most point exit strategies. However, as these markets mature, they may become very valuable for price discovery, providing exit strategies, and creating a more vibrant point economy.
Points have become a powerful tool in the Web3 ecosystem, providing benefits far beyond traditional loyalty programs. Points enable projects to reward loyal super users, bootstrap network effects, and fine-tune their go-to-market strategies in a more predictable way. This can improve product development efficiency and ultimately drive value for end users.
As this space matures, I expect to see more innovation in point program design and implementation. The key to success lies in balancing transparency and flexibility, as well as closely aligning points programs with overall project goals and user needs.
For builders and projects in the Web3 space, understanding and leveraging the power of a well-designed points program may be a key factor in achieving sustainable growth. As we move forward, points are likely to remain a fundamental component of crypto incentive structures, continuing to shape the landscape of DeFi and beyond.
Cysic's Incentivised Testnet Phase 1 and Points System are now live. As a verifier, you can contribute to real ZK projects and start earning points, which will convert into mainnet tokens when the mainnet of the Cysic network goes live in early 2025.
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