Web3, the field of the decentralized web, has seen the integration of various sectors with financial attributes such as SocialFi, GameFi, NFTFi, and ArtFi. This integration aims to utilize the advantages of blockchain technology and decentralized finance to facilitate assetization, incentive mechanisms, financing, liquidity, and autonomy, giving these sectors new economic models and application scenarios.
The development of user incentives in Web3 has undergone an evolution from tokens, whitelists, and credentials to project-specific tokens. Initially, tokens were commonly used to incentivize participant growth or loyalty, to acquire value, or to provide various types of core product utilities. Common token mechanisms focused on one-time airdrops to incentivize participation and reward early users (such as Uniswap, ENS) or continuous liquidity mining projects to reward users for performing specific actions (such as LooksRare, Compound). Towards the end of the NFT Summer, whitelisting became popular in order to filter out “family members” willing to contribute to the community and grow with it. However, the term “whitelist” eventually became a stable low-cost arbitrage tool and a chip for excessive promotion by project parties, leaving the NFT market in a mess with the arrival of the bear market. The boom of task platforms and the popularity of SBT concepts have led to another iteration of Web3’s incentive methods, with countless on-chain and off-chain behaviors turning into credentials that are stored in each wallet’s virtual space. If these credentials cannot be utilized properly, they will eventually become cyber signals resembling snowflakes.
Point-based incentives
During the last bull and bear cycle, the L2 public chain Blast successfully led the trend of using Point for user incentives by introducing a point system with real value. Recently, Linea seems to be following this successful path. On May 17th, Linea Surge, the first phase of Volt, was launched with the aim of attracting more users and increasing the Total Value Locked (TVL) on the network to promote ecosystem development. Linea Surge is a point-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 a 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 promote ecosystem development. Data shows that Linea TVL has grown significantly after the launch of the Surge program, surpassing $1.1 billion, achieving one-third of the program’s goal (TVL of $3 billion).
Even around the Point incentive model, a new sector called PointFi has emerged, with Whales Market being one of the leaders. Whales Market provides a new peer-to-peer primary market platform that allows users to pre-exchange tokens before their official issuance. This includes a P2P points market where Whales Market uses smart contracts to enable agreed-upon on-chain transactions between buyers and sellers. After the token is released, Whales Market automatically converts the points into the corresponding tokens based on announcements from the foundation. Point orders must be set in advance, and the conversion ratio to tokens will only be announced at the Token Generation Event (TGE). However, some users believe that this mechanism may result in the points of the sellers significantly exceeding the value of the tokens they receive. This could mean that sellers face risks in the transaction as they cannot determine the value of the tokens in advance, while the quantity of points may far exceed the value of the tokens.
The prevalence of the Point incentive model reflects the urgent need for project parties to increase user retention and engagement. However, as more and more point programs complete token exchanges, there have been many different voices from users and the market.
Challenges of the Point system:
1. Proliferation of point systems: With more projects adopting point systems, some question the effectiveness of this incentive model. They worry that the point system may lead to the phenomenon of “toxic TVL,” attracting a large amount of funds without actually bringing in users or builders. Additionally, some believe that the point system leads to user behavior focusing more on acquiring points rather than making genuine contributions to the project.
2. Speculation and robot manipulation: Some argue that the emergence of point systems has attracted a large number of speculators and robot manipulations, leading to market bubbles and an unhealthy environment. Project parties use point systems to quickly gain users and transaction data, but these data may not be genuine or sustainable.
3. Regulatory and compliance challenges: As regulatory authorities pay more attention to the crypto market, project parties face more compliance challenges. Some believe that the lack of clear regulatory rules has led to the abuse and confusion of point systems, making it difficult for investors to truly understand the content and risks they are accepting.
4. User attention dispersion: With more projects adopting point systems, user attention may be dispersed, making it difficult for them to focus on specific projects or ecosystems. Point systems become a means to attract user retention but may not necessarily bring long-term value and loyalty.
5. User questioning of input-output ratio: Points simplify the incentive logic of traditional interaction airdrops, but as project parties and user panel data grow, users may have unclear expectations of future airdrops due to the increase in points. Eventually, they may face ambiguous profit calculations or be “flexibly” determined by the project parties. The phrase “points do not imply profit commitments” often leads to a vacuum period between the end of point activities and the realization of incentives, resulting in various “noises” within and outside the community.
Although the point system may bring short-term attention and funding to projects, ensuring that this incentive model truly promotes the healthy development and long-term sustainability of the ecosystem still requires the joint efforts and considerations of project parties, investors, and regulatory authorities.
Solution – Long-term incentive mechanisms
Staged rewards: Rewards are divided into multiple stages, and users need to complete tasks in different stages to receive the full rewards. For example, recent projects like Ether.fi, Renzo, and UXLINK have adopted staged airdrops. These projects generally announce the total number of airdrops and future (vague) airdrop plans along with the announcement of eligibility to ensure sustained community attention and attract seed users who can help spread the project and profit expectations.
Case study of staged rewards (using Renzo as an example):
Renzo distributes rewards in multiple stages through airdrops, and users need to complete tasks in different stages to receive the full rewards.
Phase 1:
Acquisition method: Users earn points by minting and holding ezETH or providing liquidity.
Reward mechanism: Holding 1 ezETH earns 1 point per hour; depositing 1 ezETH and 1 ETH in the DEX pool earns 4 points per hour.
Extra rewards: Early participants can receive additional rewards.
Phase 2:
Start date: April 26th
Acquisition method: Continued holding or increasing ezETH balance, staking REZ to earn points.
Reward mechanism: Additional point rewards for ezETH holders in the user’s wallet and supported ezETH DeFi integrations. Staking 5000 REZ earns 1 point per hour.
Extra rewards: Participants from Phase 1 who maintain or increase their ezETH balance in Phase 2 will receive a 10% additional point reward. Phase 1 airdrop holders who maintain an average daily REZ staking balance greater than the airdrop amount will receive a 50% additional point reward. All bonuses will take effect at the end of Phase 2.
This approach not only incentivizes long-term user contributions but also increases project exposure by introducing news points continuously.
“Time-weighted” loyalty program: Establishing a “time-weighted” loyalty program that differs from traditional loyalty programs, where long-term user participation and contributions can not only accumulate points but also enjoy higher conversion bonuses.
Design scheme for time-weighted mechanism (using SocialFi as an example):
Due to the high cost of social migration and the strong advantage of centralized social platforms, the SocialFi sector has had almost no successful projects. Social finance projects need to attract users and increase activity through other means. For example, Lenster, friend.tech, Farcaster, we have seen the impact of financial attributes such as airdrops, incentives, and financing on the application of social attributes. How can we better unleash the financial attributes of social products? Perhaps we can imagine a program specifically designed to record user contributions for early-stage SocialFi projects, where all on-chain activities of users are recorded, including but not limited to the number of participation and the time span, as well as the specific contributions made each time, such as content creation, participation in discussions, and suggestions. The number of contributions and the time span will proportionally affect the number of points users can accumulate. More frequent participation and long-term continuous contributions will receive more point rewards, while less frequent or shorter participation will receive fewer point rewards.
At the same time, a time-weighted ratio needs to be designed to determine the impact of the time span of user contributions on point rewards. For example, points earned at the beginning of participation may only account for a small portion of the total points earned 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 a year, publishing content every month and actively participating in community discussions.
User B only participated in the project for one month and only published one piece of content. After learning about the airdrop snapshot time, they started publishing content continuously and actively participating in community discussions.
Let’s assume that both User A and User B actively interacted and produced content in the months of July, August, and September, accumulating almost the same number of points during these three months. However, due to User A’s significantly longer contribution duration compared to User B, according to the time-weighted mechanism, User A will receive a significantly higher conversion ratio when redeeming points because of their higher participation frequency.
There are also studies suggesting that the economic models of projects, such as GameFi, can use social rules (such as achievement systems and ranking systems) and economic rules (such as point rewards and NFT rewards) to incentivize user participation and contribution. Specifically, this can be divided into:
1. Task and achievement rewards: Users can earn rewards by completing specific tasks or achieving milestones, incentivizing them to participate more in the game.
2. Social interaction: Encourage players to earn rewards through social interactions such as teamwork and competition, enhancing community stickiness.
3. Virtual asset trading: Allow players to trade NFTs and other virtual assets, which can bring points and even token rewards.
Player behavior and contributions in the game directly impact the number and value of rewards they can earn. However, how to allow highly active and highly contributing players to receive more rewards and occupy a more favorable position in the economic system is a topic that deserves further research and exploration.
Additionally, considering the introduction of lock-up mechanisms similar to VCs (points can only be converted into tokens within a specific period or after certain conditions are met) or designing gradual unlocking mechanisms (users gradually unlock points for a certain period after the project is launched, which helps maintain the value of points) could be beneficial.
Conclusion:
Despite the challenges faced by the point system in its implementation, such as speculation, regulatory issues, and user attention dispersion, Web3 project parties are expected to find more efficient and fair incentive methods through continuous optimization and innovation. We have proposed new incentive mechanisms such as staged rewards and time-weighted loyalty programs. The proper use of these methods can not only incentivize long-term user contributions but also increase project exposure by continuously introducing news points. Furthermore, project parties can combine social rules and economic rules to further design incentive systems that truly promote user participation and contribution. In the future, with the joint efforts of all parties, the Web3 ecosystem will experience healthier and more sustainable development, bringing more value and opportunities to users and developers.
