Points Programs in Crypto Consumer Apps (First Part)

FIRST PART

In the dynamic world of crypto-based consumer applications, points programs are emerging as a key strategy for user loyalty. This series of 3 articles will focus on how these apps are using on-chain revenue distribution on the blockchain to drive growth and retention, following the principles of the "Progressive Ownership" model we previously discussed. We will explain how these innovative strategies not only benefit users but also reinforce engagement and loyalty within blockchain platforms.

INTRODUCTION

As mentioned in the previous article on "Progressive Ownership: A New Model of User Loyalty with Tokens" (you can read the first part here: Link and the second part here: Link2), the following aspects were highlighted in the process of achieving progressive ownership in a project:

1. Develop products that meet user needs.
2. Use on-chain revenue distribution to drive growth and retention.
3. Allow advanced users to achieve ownership (e.g., exchanging revenue for tokens).

In this article, we will expand and detail the second point of the process, "Use on-chain revenue distribution to drive growth and retention." Here, we will explore how points programs are emerging as an effective strategy for user loyalty, offering rewards for active participation on the platforms. This tactic has gained relevance in the realm of blockchain applications and platforms, where it is leveraged as an innovative tool to improve user retention and engagement.

WHAT ARE CRYPTO CONSUMER APPS?

Based on the Progressive Ownership model, Crypto Consumer Apps seek real solutions for the user, utilizing blockchain as a foundation and focusing on experience and entertainment, as well as retaining loyal users who use the platform by leveraging blockchain technology and tokens to create experiences that are not possible in Web2. The emphasis is no longer on governance or the distribution of product value dividends but on the growth of the platform itself and how to drive it. Additionally, they focus on two types of users with different types of assets: on one side, the points-based system for those who actively and loyally use the application, adding value to the community, and on the other, tokens for investors who participate in project governance.

In these applications, ownership is attributed to points generated from experiences within the apps, thus no longer focusing on metrics like TVL (Total Value Locked) or the protocol's own fundraising. Instead, these applications promote utility and fun, and disincentivize investment.

Crypto Consumer Apps aspire to reach the early majority, users who tend to be loyal when they find something useful and beneficial, such as fun and utility. These users represent a broad demographic that seeks meaningful and practical experiences in the applications they use. The key lies in offering them a combination of entertainment and functionality that fits their needs and preferences, which in turn will strengthen their engagement and loyalty to the platform.

For a long time, points programs have been a fundamental feature in consumer applications outside the blockchain realm, from games to corporate programs like Starbucks Rewards. Essentially, these programs allow users to accumulate points by performing various activities, which can then be redeemed or used in various ways. This strategy aims to motivate users to actively participate and maintain their engagement with the platform.

Users of Crypto Consumer Apps show greater engagement with the product when offered direct rewards for using the app, rather than simply receiving tokens as investors. This is because immediate and tangible rewards, such as points programs or participation bonuses, generate a sense of instant gratification and reinforce continuous interaction with the platform. On the other hand, simply granting tokens as a form of investment may not generate the same level of engagement from users, as their primary focus could be the financial value rather than the immediate experience and utility of the app.

Moreover, tokens primarily aimed at investors may not be healthy for the product itself, as they can attract users with purely financial and speculative motivations that may not align with the fundamental goals and values of the application. Instead, by focusing on rewarding the active and ongoing use of the application, founders can create a more engaged and sustainable community that contributes to the long-term growth and development of the product.

On the other hand, launching a token today represents a significant challenge. Projects have understood that the launch process is no longer as simple as it was during the period from 2017 to 2022. Companies that conducted ICOs in 2017 faced numerous legal issues, and this trend continued in 2021 and 2022. The regulatory barrier has become considerably higher, with the SEC and other regulatory bodies focusing their attention on companies launching ICOs or tokens that share similarities with securities. As a result, projects have started exploring alternatives, opting to start with points programs and then assess how these can contribute to the growth of the application and generate greater benefits in the future.

These projects are often funded by venture capital, providing the initial investment needed to start and maintain the application in its early stages. This initial funding allows projects to take their first steps and establish themselves in the market, with the hope of achieving scalability and long-term success.

EXAMPLES OF CRYPTO CONSUMER APPS WITH POINTS PROGRAMS

As mentioned earlier, points programs are being adopted as incentive models in many blockchain applications. Below, we describe some of these applications:

1. Farcaster: A decentralized social networking protocol designed to drive the development of decentralized social apps, focusing on interoperability, privacy, and user autonomy. Built on the Optimism blockchain network, an Ethereum Layer-2 (L2) platform, Farcaster ensures user ownership and data integrity through its decentralized infrastructure. This protocol is interoperable, allowing easy interaction with other blockchain networks for the exchange of data, digital assets, and information between protocols.  To counter bot activity, Farcaster implemented a payment model that requires users to pay a registration fee, currently USD 5, to discourage the creation of spam accounts. This fee also limits the number of "casts" (similar to tweets) a user can share in paid storage units. By paying this fee, valid for up to a year, the user is limited to 5,000 casts, 2,500 post attachments, and 2,500 reactions. Users can purchase additional storage units once the initial ones are exhausted, thus preventing Farcaster applications from being overwhelmed by bot activities.  The Warpcast application, as Farcaster's first client, introduces "Warps," in-app points, which provide users with access to benefits and privileges. Warps, off-chain tokens, are centrally managed by the Warpcast team. Users can earn Warps through the rewards program by being active on the app and sharing "casts" that reach certain engagement thresholds. Warps are also awarded to builders who run Farcaster nodes (called Hubs) and help maintain the decentralized network. Additionally, Warps can be purchased directly with cryptocurrencies.  In Farcaster, the quality of content shared on the social network is prioritized to attract and retain engaged and participatory users. These users play a fundamental role in creating an enriching experience for the entire community.  Currently, users can use points to pay broadcast fees on Warpcast, gift Warps to other users, and create Farcaster channels.
2. Friend.tech: A decentralized social app on the Base blockchain network that allows creators to monetize their content or expertise. Users, linked to Twitter accounts (now X), can buy and sell "Keys" (formerly called Shares) of other influencer users on the platform, giving them the right to communicate directly with them. Content creators connect with their online community through tokens represented by "Keys," which essentially are shares that provide access to private and exclusive conversations, advice, or any other advantage associated with the account.  This model allows content creators to build a community and monetize their influence. Friend.tech generates engagement around points systems (FRIEND token) through airdrops, distributing points among users equitably based on the keys each had. Users can also earn extra points by buying and selling “Keys,” as well as by other on-chain actions.
3. Rainbow Wallet: A wallet that rewards users with points for using and transacting on Ethereum. If you have used Ethereum, you have Rainbow Points. Points are earned for most regular on-chain actions on Rainbow. To earn the most points, you should: a) Swap and bridge in Rainbow, b) Invite your friends to Rainbow, c) Mint NFTs in Rainbow, d) Accept NFT offers through Rainbow, e) Earn 10% of the points your friends have earned and 10% of all the points they will earn, plus additional points when they refer friends.
4. Blockchain Blast: From the Blur marketplace offers Blast Points as an incentive for fund transfers. Blast is an Ethereum Layer-2 (L2) platform created by the team behind the Blur NFT marketplace. It stands out by allowing users to earn yields in cryptocurrencies like ETH, USDC, USDT, and DAI simply by holding them in their wallets. There are two different types of points within this platform, one to incentivize users and the other to incentivize teams creating their dapps on it. Blast Points are awarded to users for participating in Blast ecosystem activities, such as lending, providing liquidity, and trading. The other type of token, Blast Gold, is distributed to dapps based on their TVL (Total Value Locked) and user activity. Dapps can retain Blast Gold for themselves or distribute it to their users.

Some other examples of Crypto Consumer Apps are:

1. Jokerace (Non-binding voting)
2. Blackbird (Loyalty for restaurants)
3. Telegram (Web3 messaging)
4. Mirror.xyz (Web3 Medium)

In some cases, points represent a potential fungible token with real economic value in the future; while in other cases, users are adopting that perspective themselves. This trend emerges amid a broader search for product-market fit in the blockchain world and new strategies to engage users.

CLOSURE FIRST PART

Points programs in crypto consumer apps are revolutionizing how user loyalty and retention are achieved. By offering tangible rewards for active participation, these platforms not only enhance the user experience but also strengthen the community and promote sustainable growth. In the second part of this article, we will delve into specific examples of applications.