Understanding the Pros and Cons of Onchain Points

Table of Contents
In cryptocurrencies, trends come and go, shaping the narrative around the industry. From ICOs to DeFi and NFTs, each trend has successfully engaged audiences unfamiliar with crypto. A new wave is now emerging, and it's centered around a concept we're all familiar with - points. More intriguingly, these points are onchain, offering a fresh perspective on user engagement and growth within the crypto space.

I. The Rise of Onchain Points

Points, in this context, serve a dual purpose: they incentivize users to perform specific actions that drive growth for the platform, and they act as a prelude to the governance tokens that have become integral to the decentralized protocols that dominate the crypto landscape. What sets onchain points apart is their adaptability – a dynamic quality that allows founders to fine-tune and experiment with different formulas, thereby optimizing the user experience and fostering growth.
These gamified reward units create an intriguing parallel to systems we encounter regularly, such as loyalty programs. Their theoretical infinite supply not only distinguishes them from traditional tokens but also aligns them more closely with the reward structures prevalent in everyday consumer interactions. Points, as a concept, introduce an innovative means of encouraging specific behaviors, thereby training users to contribute to the growth of the platform.
As we delve deeper into the significance of onchain points, it becomes evident that they offer a unique blend of familiarity and innovation. Much like the loyalty programs we encounter in our daily lives, onchain points aim to create an incentive for users to return to an application, providing a dopamine boost derived from the continual accumulation of these digital assets.
Furthermore, onchain points represent the bridge between consumer applications and the world of decentralized protocols. In a landscape where the goal is to reach billions of users, founders are faced with the challenge of creating systems that are not only easy to understand but also enjoyable to engage with. Points, in this regard, become the key to unlocking mainstream adoption by catering to users with varying levels of intelligence and knowledge about the intricacies of crypto.
The intrinsic value of onchain points lies in their ability to reward actions that were historically not the focus of onchain companies. By encompassing activities such as creating viral moments on social media platforms like Instagram and Twitter, these points inherently reach a new demographic of users who might have been otherwise untouched by the crypto wave.
The landscape of onchain points is rapidly expanding, and innovative projects are at the forefront of this burgeoning trend. A diverse array of initiatives is actively exploring the potential of onchain points, each bringing a unique approach to the table. Let's delve into the exploration of these projects and the overarching trends that define this dynamic space.
Exploration of Projects: FriendTech, Warpcast, EigenLayer, and More
FriendTech, Warpcast, EigenLayer, and a host of other projects have become pioneers in the onchain points movement. These ventures are not merely experimenting; they are actively redefining user engagement in the crypto space. FriendTech, for instance, explores how onchain points can be seamlessly integrated into social interactions, creating a novel user experience. Warpcast, on the other hand, might be taking a different route, potentially utilizing onchain points to revolutionize content distribution or interaction within a decentralized ecosystem. EigenLayer, with its unique approach, might be exploring how onchain points can enhance data ownership and incentivize users to contribute to decentralized data networks.
The diversity among these projects showcases the versatility of onchain points, each catering to different facets of user engagement and experience. While some may focus on social interactions, others might be venturing into content creation, data ownership, or even entertainment.
Points Emerging in the SocialFi Narrative
The emergence of onchain points initially found its roots in what is now termed the SocialFi narrative. As decentralized finance (DeFi) and non-fungible tokens (NFTs) dominated the crypto conversation, the infusion of onchain points added a social layer to this narrative. These projects recognize the potential to harness the power of social interactions and community engagement by introducing gamified rewards. The result is a new dimension in the crypto space, where users not only participate in financial ecosystems but also contribute to and benefit from a vibrant social framework.
These projects are not just trends; they represent a paradigm shift in how crypto projects approach user engagement and adoption. The fusion of social dynamics with onchain points opens up exciting possibilities for creating inclusive, interactive, and dynamic crypto communities.

III. Advantages of Onchain Points

The integration of onchain points into the crypto landscape heralds a new era, bringing forth a myriad of advantages that set them apart from traditional models. As we delve into the unique benefits offered by onchain points, it becomes apparent that their potential extends far beyond mere gamification.
Liquidity and the Potential for a Liquid Market
One of the standout advantages of onchain points lies in their potential to create a liquid market, a concept that adds a layer of versatility to the crypto ecosystem. Unlike traditional points systems that lack tradability, onchain points can be bought and sold. This introduces a speculative dimension, allowing users to engage with onchain points as they would with other crypto assets. The ability to trade onchain points for cash brings liquidity to a previously static aspect of gamified reward systems.
This liquidity aspect not only introduces a novel trading dynamic but also fosters a sense of tangible value for users. The ability to convert onchain points into real-world value transforms them from mere digital tokens into assets with practical significance, adding depth and utility to the entire ecosystem.
Removal of Governance Complexity: L2s and L3s Enable Onchain Points
Onchain points also bring about a notable simplification in the often complex realm of governance. Unlike tokens, which typically require intricate governance structures involving offshore entities, airdrops, marketing campaigns, forums, committees, multisigs, and treasuries, onchain points streamline this process. They allow for a focused approach where 100% of the attention can be directed toward how an application creates and captures value.
The emergence of Layer 2 (L2) and soon Layer 3 (L3) solutions, such as Optimism and Arbitrum, plays a pivotal role in enabling onchain points to function at scale. The reduction in transaction fees provided by these solutions makes real-time transactions for minimal amounts feasible. This scalability addresses a significant hurdle that previously hindered the practicality of onchain points, broadening their applicability and appeal.

IV. Points Dynamics and Considerations

Pricing Onchain Points: Bonding Curves
When it comes to onchain points, the traditional approach of mapping out a total supply and token distribution takes a backseat. Instead, the spotlight is on bonding curves, ushering in a new way of pricing these gamified reward units. Bonding curves provide a streamlined alternative, simplifying the process and eliminating the need for liquidity pools and crypto-native actions that might introduce friction.
This approach involves mapping points on a curve, where the emphasis is on the purchase and sale of points. The pricing is straightforward – the cost to purchase points and the corresponding selling price. This simplicity not only enhances user understanding but also creates a self-sustaining system where every new point purchase injects liquidity into the market for someone else to sell points.
To kickstart the bonding curve, teams are encouraged to invest their own capital, fostering a sense of accountability. This dynamic ensures that the points issued and distributed align with their intended purpose of generating value for the network. If the points fail to contribute positively, the team may risk losing their investment, introducing a mechanism that rewards meaningful contributions to the ecosystem.
Business Model: Taking a Fee on Points
The business model surrounding onchain points is elegantly straightforward and aligns the interests of both the platform and its users. Rather than relying on complex governance structures, onchain points provide an immediate avenue for revenue – taking a fee on the sale of points. Users, motivated by the desire to enhance their status within the system, willingly purchase points. As long as this demand persists, a sustainable revenue stream is generated for the platform.
This model not only ensures the financial health of the project but also creates a symbiotic relationship between user engagement and platform sustainability. The seamless integration of onchain points into the revenue model enhances the platform's viability and creates a scenario where the success of the project directly translates into financial gains for both users and the development team.
Pitfalls and Considerations: Importance of Product-Market Fit
While the prospect of onchain points is exciting, it's crucial to acknowledge potential pitfalls, as eloquently articulated in discussions by thought leaders like Li Jin. Onchain points, in the absence of a robust product-market fit, can be precarious. It is imperative for teams to design games and applications that are inherently valuable and engaging, irrespective of the points system.
A noteworthy example is DuoLingo, where the core focus remains on language learning, with points acting as a complementary incentive to encourage continued participation. Onchain points should not serve as a substitute for a compelling product but should instead enhance the overall gamified experience.
Additionally, the active value of onchain points is contingent on creating a system where users are incentivized to keep their points within the ecosystem rather than immediately selling them. Striking this balance ensures that onchain points contribute positively to user engagement and the platform's overall value proposition.
For crypto-native products, it's essential to be mindful that the introduction of onchain points signals an intent to launch a token in the future. While this approach buys time and provides flexibility, it also communicates a commitment to evolving towards a tokenized structure, thereby setting certain expectations within the crypto community.

Conclusion

As we navigate the ever-evolving crypto landscape, the rise of onchain points marks a significant shift. This user-friendly approach brings a refreshing perspective, offering simplicity and accessibility without compromising the potential for value creation. The projects leading this charge, with a focus on liquidity and user engagement, are setting the stage for a new era in crypto adoption and innovation.

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