On-chain rewards offer teams more flexibility and room for adjustment compared to token rewards.

As the industry matures, venture capital firm Archetype believes that in addition to token airdrop rewards as a marketing tactic, using on-chain points may also be a promising marketing tool. Unlike tokens, on-chain points can provide project teams with more flexibility and are easier for users to understand.

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Blockchain-based Points: An Interesting Experiment

Experiments with points systems in the crypto industry are gradually emerging, such as Blur's points leaderboard, which uses bidding and lending points to incentivize users to perform specific actions and redistribute rewards. For instance, Rainbow recently started issuing points to reward users for trading within the Rainbow wallet.

Most of these points projects are conducted offline, meaning they are off-chain points, making them similar to traditional points programs in the Web2 industry.

However, creating "on-chain points" could be an interesting experiment. It allows for using points in a blockchain environment to achieve ownership distribution, resist sybil attacks, or enhance DeFi market functions in a trustless manner.

Why On-Chain Points are Needed

Gamification Mechanisms Drive Product Growth

Gamification mechanisms enhance a product's appeal to users, improving various product metrics in the customer experience journey, including acquisition rate, activity rate, retention rate, conversion rate, referral rate, and more.

For example, language learning app Duolingo successfully engages users in language learning through mechanisms like leaderboards and points.

Of particular interest is the PBL theory in gamification, which involves using Points, Benefits, and Leaderboards in product design. This article explores on-chain points as a starting point for Web3 product growth, leveraging the new advantages that points combined with blockchain can offer.

Drawbacks of Using Tokens as Rewards

Some may question why on-chain points are necessary when tokens could suffice. While using tokens as rewards can aid in product development and has been prevalent in the crypto industry for years with relatively mature infrastructure, there are at least two notable drawbacks:

• Difficulty in identifying genuine users
• Lack of flexibility in strategy adjustment

The high cost of on-chain transactions often directs rewards to users willing to pay high fees, typically profit-driven individuals, disadvantaging less fee-tolerant or risk-averse participants who are often valuable new users.

Additionally, using tokens instead of on-chain points as rewards requires detailed design considerations at token issuance regarding supply, distribution speed, token utility, value capture mechanisms, which can burden teams in dynamic startup environments.

Flexibility of On-Chain Points over Tokens

Points are typically non-financial and flexible attributes controlled by the issuer. Point systems allow for easy adjustments without immediately impacting market dynamics.

For instance, points supply can be limitless, and methods for using and redeeming points can be adjusted according to project strategies. Moreover, whether points are tradable can also be determined by the issuer.

Points allow for real-time adjustments and community feedback without fundamentally altering market dynamics, product mechanisms, or user behavior, giving teams more time and awareness to understand and retain users better.

Points help eliminate the urgency for projects to define their token model and distribution method prematurely, as points enable teams to decide on token design mechanisms later. Furthermore, since points systems have been implemented in the Web2 industry for a long time, the regulatory risk is relatively lower compared to tokens.

Compared to tokens, on-chain points are easier for users to understand and operate. Given the price volatility of tokens, users may struggle to comprehend their significance, leading to questions like, "Should I view this token as an investment or a consumable resource for accessing the product?" This can hinder token marketing efforts. For example, a game's playing price could be $25 one day and $10 the next, causing user fatigue and product abandonment due to price fluctuations.

ERC20 tokens maximize composability and minimize issuer flexibility, while off-chain points minimize composability and maximize issuer flexibility.

Applications of On-Chain Points

On-chain points have numerous potential application scenarios.

Composability

While on-chain points have lower composability compared to tokens, they still offer a certain level of composability over off-chain points.

On some level, on-chain points can be seen as quantifiable proofs that can be viewed and utilized globally. Anyone can issue points to others on-chain and establish their own points system based on the usage or points of other project products.

Furthermore, on-chain points can add new dimensions to users' on-chain identities, similar to accumulating a quantifiable on-chain credential that can be integrated into various protocols. On-chain points can serve as a powerful marketing tool for projects and brands to identify users across products, attracting potential customers through discounts and airdrops.

Points Traceability

On-chain points ensure source credibility and auditability, making point distribution and historical records transparent, crucial for communities seeking fairness.

For instance, traditional brands and agencies often select which Key Opinion Leaders (KOLs) to collaborate with based on metrics from platforms like YouTube, TikTok, Instagram, etc. However, these platforms' algorithms often amplify and distribute in a black-box environment, making the logic and effectiveness behind these metrics difficult to grasp.

Information Disclosure

Before better information disclosure methods are implemented, on-chain points can serve as a low-cost means that can undergo community scrutiny, reducing the risk of disputes arising from airdrops. Third-party timestamp verification can even be used to audit the distribution of on-chain points.

Trust Assurance

Blockchain provides clear guarantees for users' current point distribution and redemption options. These guarantees enable project parties to securely allow users to redeem rewards with minimal trust assumptions, giving on-chain points a previously unrealized potential value compared to off-chain points.

Resistance to Sybil Attacks

As mentioned earlier, point systems can enhance one quantifiable dimension of on-chain identities, suggesting that on-chain points could serve as a means to identify user personas, enhancing industry resistance to multi-account reward theft and sybil attacks.

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Unique Applications of On-Chain Points

Gamification narratives are not new, with many cases and studies proving that gamification can foster positive user habit formation, motivation, and brand loyalty enhancement.

When combined with blockchain, points demonstrate many unique application scenarios distinct from traditional points or tokens, making them a direction worth exploring for project teams.