The crypto community does not seem to welcome the points program

If there is one thing that has united members of the crypto community in recent months, it is the emergence of points.

Only they do not support them but are firmly against it.

“Point is probably the stupidest detour crypto has ever taken in my time here. Also borderline fraudulent,” Gabriel Shapiro, general counsel at Delphi Labs, said on X.

This frustration can be seen in the responses to projects that recently announced their point programs. “Wow, what a great and exciting new score,” one user X sarcastically replied on Jan. 23 when cryptocurrency wallet Rabby revealed its new program. Others were even harsher in their criticism.

What is Point?

Typically in the cryptocurrency space, points are given as incentives for activities such as participating in the network or interacting with the platform. Accumulated points can serve as a basis for distributing cryptocurrency tokens via airdrops, a strategy that has been used by a number of projects recently.

For example, Jito, a liquidity staking protocol on the Solana blockchain, rewarded users with points for staking SOL, making them eligible for the airdrop. Similarly, the NFT Blur platform distributed tokens to users based on the points they had accumulated through their activities.

Why is point "estranged"?

It's not hard to figure out why. Over the past few years, projects have rewarded loyal users and successful airdrop hunters with sudden issuances of tokens, often worth thousands of dollars — and sometimes up to hundreds of thousands of dollars . For some, it can be life-changing money. Unsurprisingly, this phenomenon has led to an entire ecosystem of airdrop hunters looking to cash in on the next big airdrop.

But points are the opposite of what airdrop hunters are looking for. With airdrops, people who make some transactions hoping to receive the airdrop and get lucky when it comes feel like they have beaten the system in some way – that their ingenuity or sheer luck they led to this unexpected fortune. But with points, users are obeying the system and obediently, hoping that one day the system will be kind to them and reward their loyal actions with tokens some day in the future. not far away. There aren't any advantages for players and it's simply not as exciting as airdrops.

Additionally, a point is like an IOU that may never be delivered, just a number on a screen reminiscent of the days of web2. They are not on-chain, they cannot be traded, and they may not turn into any tokens. The most important thing is that they are not worth anything – and probably never will be.

A visual representation of the point's appearance. Source: Bold Leonidas/ X.

Some investors are also worried that points don't have the staying power of a potential airdrop.

“The founders think “point” is a smart and easy mode for them, locking users indefinitely. But that's not true; In fact, the opposite is true. Users cannot be everywhere at once and their attention spans,” Long Solitude, an anonymous investor at VC firm Zee Prime Capital, said on X.

KVK, director of anonymous investors at VC firm HASH CIB, agrees that users only maintain short attention spans and notes that most point programs lack a clear end date, making the situation worse.

KVK said in a Substack post for point:

“In a world where there is a new protocol with a point-based system every day, it is difficult to stay relevant over time. Attention is one of the key factors to success, and an almost infinite points program (from a user perspective) doesn't help you capture that.

” In total, there are about 40.6 billion points across 12 projects – but that number is meaningless.

FriendTech: There are points but no airdrops

FriendTech is a clear example of why users are unhappy with points. This project was one of the first to implement an explicit points system in its app that rewards engagement. Every week, it drops points based on an unknown allocation system to users – a style that works brilliantly until it doesn't.

In the project's first two months, trading volume reached $412 million as users purchased keys providing access to group chats of key influencers in hopes of reselling them at a nominal rate. The price is high enough to offset the 10% tax on sales. However, this excitement quickly subsided. Over the next three and a half months, trading volume reached only $126 million much more slowly while the number of daily transactions declined.

The number of daily transactions on FriendTech has decreased significantly. Source: TK research via Dune Analytics.

Part of the reason is that from the beginning, traders were optimistic that these points would lead to a potential airdrop on the horizon. At the time, a crypto influencer nicknamed Dingaling – who has one of the most expensive channels – said FriendTech would remain successful until the token airdrop was launched. When the project received investment from Paradigm, this raised hopes that an airdrop would be launched.

However, that has so far not happened and anyone burning coins in the hope of a larger allocation appears to have lost out.

Why do VCs like points?

While many retail investors complain about points, one type of crypto investor who seems to like them is venture capitalists (VCs).

An important factor is that points are more flexible than token issuance, which cannot be changed arbitrarily. Dmitriy Berenzon, partner at VC firm Archetype, shares:

“While points cannot replace product-market fit, they provide the flexibility to test assumptions without the complexity and cost associated with launching a token.”

Multicoin Capital partner Tushar Jain agrees that points are useful for token pre-launch incentives. He commented in the company's outlook for 2024:

“Launching a token takes a lot of effort, and changing the economy will be much harder once the token goes live.”

A partner at VC firm Dragonfly, which is managed by GM, said the points offering has allowed the NFT Blur marketplace to fine-tune its offerings between seasons. Blur is currently in its third season. They added that Blur's establishment of an undisclosed score criteria helped it avoid wash trading.

Edvin Memet, a researcher at The Block Pro Research, argues that airdrops with blind criteria tend to encourage more organic usage, often leading to larger allocations.

“An airdrop with blind criteria may not attract many users before the airdrop, but it stands out as the fairest method to reward genuine users. Additionally, this is a system that is most likely to result in a significant airdrop allocation, which could generate a lot of attention and attract new users post-airdrop,” he said, citing the Jito liquidity staking project as For example.

Memet notes that Manta's point-specific system allows it to attract a higher amount of value locked in its smart contracts than it could otherwise receive. The project also retains value by automatically staking bridged Ether. He said he anticipates that other Layer 1 and Layer 2 projects will use similar systems in the future.

Jain also noted that points help avoid some of the legal risks encountered when airdropping tokens because they have no value.

“Points have no units, no maximum supply and less legal risk because they are non-transferable.”

However, some VCs are aware that points may not have unlimited staying power.

Kavita Gupta, founder and general partner of Delta Blockchain Fund, shared:

“I see it as a new story, a new thing, an interesting thing in crypto, but whether it's just a fad or not is unclear. We will definitely continue to use the points incentive system, but I think it will only work to attract customers in the short term instead of retaining them in the long term because eventually people will give a number of these types of features.”