DeFi
Why DeFi protocols like to offer “points” before airdrops – DL News
- Protocols awarding points to their users are proliferating.
- Points systems generally suggest that a protocol is preparing for an airdrop.
- The points have potential regulatory benefits.
- But some find them predatory.
Rewards programs launched by NFT marketplaces Blur and Tensor are taking over decentralized finance.
DeFi protocols that award points to users who complete certain tasks — like trading or locking their tokens — have found a new way to attract and influence users, their supporters say.
But perhaps just as importantly, these protocols may have found a way to avoid a perilous regulatory debate.
“There’s now a meme like, ‘Points are the quantitative representation of a user’s contribution to the network,'” said Kellan Grenier, co-founder of Parcl. DL Newsmocking the stilted tone of press releases and blog posts that detail the projects’ recently launched points systems.
At least that’s what each project says. But most people understand that some points suggest that the protocol in question is considering an airdrop, a distribution of newly minted free tokens.
Airdrops are intended to reward long-time users and can be worth tens or even hundreds of thousands of dollars for some.
As such, people often flock to protocols they suspect of planning an airdrop.
Some projects keep these plans secret, to ward off mercenary users looking for a quick buck.
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Others hint at future airdrops, happy to attract new users and their money.
Hinting at a drop while dictating exactly which activity is considered most valuable and deserving of reward, as points systems do, allows projects to direct user behavior like never before, according to those surveyed. DL News.
They can also attract users without actually pledging a token – which is useful in countries like the United States, where the legal status of tokens is disputed.
But some find this arrangement predatory.
“It’s critical”
Blur, the largest NFT marketplace by trading volume, is often cited as the first crypto project to successfully introduce a points system when it debuts in October 2022.
Since then, points systems have been introduced or announced by the NFT market Tensor; Rainbow crypto wallet; social media platforms Friend.tech and Warpcast; EigenLayer Ether Recovery Protocol; and Solana DeFi protocols Solend, Kamino, MarginFi, and Parcl, to name a few.
Parcl is a DeFi protocol on Solana that allows users to speculate on real estate prices around the world. Last week was announcement its own points system.
Grenier remembers seeing Blur and Tensor eating away at market share against their competitors OpenSea and Magic Eden. He thought this might be something Parcl could implement.
His intuition was confirmed this summer, when friendly.tech, which has its own points system, took off. He now says that points are necessary to survive in the hyper-competitive crypto ecosystem.
“It’s crucial,” he said. “We felt that if we didn’t have a points program, it would be difficult to maintain attention on our product and attract new people or new dollars.”
Beta testing
The benefit can be substantial.
MargeFi detailed its own points system on July 3. In two months, his crypto deposited in MarginFi increased sevenfold, reaching more than $21 million, according to data from DefiLlama.
It is now one of the most frequently cited protocols by people making lists of potential upcoming airdrops.
MarginFi deposits soared after the protocol implemented a points program.
“We wanted a real way to quantify user quality/activity. This was a step in that direction,” said founder MacBrennan Peet. DL News. “We plan to do a lot from here.”
However, the benefit goes beyond attracting new users and money.
“If you want to move capital into a pool or incentivize people to explore new products on your platform, you can incentivize those things with points,” said an associate at a crypto venture capital firm, who requested anonymity to speak frankly about a subject whose legal status is still unclear.
“Some people view them as another proxy for tokens,” the partner said. “But sophisticated operators view them as a kind of beta test before releasing them to the market. Because most of the points campaigns took place before the token generation events.
Trevor Bacon, one of the co-founders of Parcl, said this was another example of crypto’s ability to put a new spin on finance.
“It’s completely unique to blockchain,” he said. “Loyalty points [exist], but it is not for network ownership. For example, you get loyalty points at Delta, [but] you do not own Delta stock.
“Lawyers love points”
In the United States, where regulators are cracking down on crypto, points can also allow projects to postpone the legal headache that can sometimes follow token issuance.
“For a certain group of teams that are risk averse or work in highly regulated jurisdictions, points are a way for them to engage in marketing activity before they have clear regulation,” said the VC.
“In order to issue a token, your legal advisor must sign it. And there are different opinions from different legal advisors. …While they’re still figuring that out, points offer them the ability to engage in the market and, you know, attract users, add liquidity into their systems without having to issue token.
When asked if he had heard this argument, Grenier refused to answer directly.
“As far as we know, lawyers love points,” he said.
Counterpoint(s)
But things have their critics.
“Users pay a fee to earn points that have no known value, no distribution time frame, and can be changed retroactively,” Solend said in a blog post announcing its own points program. “They take advantage of high expectations and avoid accountability. »
Solend’s pseudonymous founder, who goes by the name Rooter, said most points programs capitalize on “hype and FOMO.”
“Some projects overuse this by teasing an airdrop for months,” Rooter said. DL News. “The original incentive program (liquidity mining, launched by Compound) is better for users because it is open rather than being a black box.”
Solend already has a token. The rewards for accumulating points on the platform are specified, as is the duration of the program.
Whatever the pitfalls, the protocols are riding the wave.
“The beautiful thing is that the pie gets bigger for everyone, which is fantastic,” Grenier said.