Why do DeFi protocols prefer to give ‘points’ before airdrop?

• Protocols that provide points to their users are growing rapidly.
• Point systems usually indicate that a protocol is preparing for airdrop.
• There are potential regulatory benefits at points.
• But some people consider them hunters.

Rewards programs launched by NFT marketplaces Blur and Tensor are taking over decentralized finance.

Proponents say DeFi protocols that award points to users who complete certain tasks — such as making a trade or locking one’s tokens — have found a new way to attract and influence users.

However, perhaps just as important, those protocols may have found a way to sidestep a dangerous regulatory debate.

“There’s a meme right now that goes like this: ‘Points are a quantitative representation of a user’s contribution to the network,’” explained Kellan Grenier, co-founder of Parcl. DL NewsMocking the intransigent tone of press releases and blog posts detailing the projects’ newly launched points system.

At least that’s what every project says. But most people understand that point suggests that the protocol in question is considering an airdrop, a distribution of free, newly minted tokens.

Airdrops have long been intended to reward longtime users and can be worth tens or even hundreds of thousands of dollars for some.

In such a situation, people often follow the same protocols as those they suspect planning an airdrop.

Some projects keep those plans secret to keep away mercenary users looking to make a quick buck.

Others are hinting at future airdrops, happy to attract new users and their money.

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According to those spoken to, adding prompts on an airdrop and deciding which activity is considered most valuable and worthy of a reward, as point systems do, allows projects to guide user behavior like never before. allows for. DL News,

They can also attract users without actually promising the token – useful in countries like the United States, where the legal status of the token is disputed.

But some people find this system predatory.

‘It is important’

Blur, the largest NFT marketplace by trade volume, is often cited as the first crypto project to successfully introduce a points system when it launches in October 2022.

Since then, point systems have been introduced or announced by NFT marketplace Tensor; Crypto Wallet Rainbow; social media platforms Friend.tech and Warpcast; Ether Staking Protocol EigenLayer; and Solana DeFi protocols Solend, Kamino, Marginify, and Parkal, to name a few.

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Parcl is a DeFi protocol on Solana that allows users to speculate on real estate prices around the world. Last week, it announced a scoring system of its own.

Grenier remembered watching Blur and Tensor eat market share from competitors OpenSea and Magic Eden. He thought this might be something that Parcl could implement.

His guess was confirmed this summer, when Friend.Tech, which has its own points system, took off. He now says that points are essential to survive in the highly competitive crypto ecosystem.

“This is important,” he said. “We thought, if we didn’t have a points program it would be harder to maintain attention on our product, and it would be harder to attract new people or new dollars.”

beta testing

The benefits can be substantial.

Marginify detailed its own scoring system on July 3. Within two months, its cryptocurrency deposits in MarginFi have increased sevenfold to more than $21 million, according to data from Defilama.

It is now one of the most cited protocols by people compiling lists of possible upcoming airdrops.

Marginify deposits increased after the protocol implemented the points program.

“We wanted a real way to measure user quality/activity. This was a step in that direction,” said founder McBrennan Peet. DL News, “There’s a lot we’re planning to do from here.”

However, its benefits go 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,” says Chris Henderson, CEO of a crypto venture capital firm. said a colleague, who requested anonymity to speak candidly about a topic. The legal status is still doubtful.

“Some people think of them as another proxy for the token,” the partner said, “but sophisticated operators think of them as a way to beta test them before going to market.” Because most points campaigns occur before the token generation event.”

Trevor Bacon, one of the co-founders of Parcl, said this is another example of crypto’s ability to bring a new twist on finance.

“This is completely unique to blockchain,” he said. “Do loyalty points [exist], but it is not for network ownership. Like, you get loyalty points on Delta, [but] You don’t have Delta stock.”

‘Lawyers like issues’

In the US, where regulators are cracking down on crypto, points may also allow projects to avoid the legal headaches that can sometimes occur after issuing tokens.

“For a certain group of teams that want to avoid risk, or are in a highly regulated jurisdiction, points are a way to get involved in marketing activity before regulatory clarity,” the VC said.

“For the token to be issued, your legal attorney must sign off on it. And different legal advisors have different opinions. …While they’re still figuring it out, Points provide them the ability to join the market and, you know, acquire users, add liquidity to their system without issuing tokens.

Asked if he had heard that argument, Grenier declined to answer directly.

“As far as we know, lawyers love issues,” he said.

competition(S)

But the points have their critics.

Soland said in a blog post announcing its own points program, “Users pay a fee to earn points, which have no known value, no time limit for distribution, and are awarded retroactively.” Can be changed from.” “They take advantage of high expectations and avoid accountability.”

Soland’s pseudonymous founder, who goes by the name Rooter, said most points programs are based on “hype and FOMO.”

“Some projects have been abusing AirDrop by tinkering with it for months,” Rutter said. DL News, “The original incentive program (liquidity mining, led by Compound) is better for users because it is open rather than being a black box.”

Soland already has a token. Rewards for earning points on the platform are specified, as is the time limit of the program.

Whatever the losses, the protocols are riding the wave.

“The beauty is that the pie is growing for everyone, which is fantastic,” Grenier said.

Source: www.dlnews.com