Understanding Crypto Points in Web3 Project Ecosystems

“Crypto points” denote a mechanism utilized by web3 projects to attribute value to certain actions. Developers behind web3 initiatives might distribute crypto points to introduce an element of gamification to their protocol, facilitate governance or voting processes, or discourage behavior by airdrop farmers, among other objectives. These points may serve as a conduit to cryptocurrency compensation or alternative rewards.

Typically, the management of crypto points is centralized, with the respective web3 project overseeing the distribution and monitoring of their points system, as opposed to logging such transactions on a blockchain.

Over a dozen cryptocurrency initiatives have allocated upwards of 40 billion points across many users. This segment explores the nature of these points and the rationale behind their distribution.

What Constitutes Crypto Points?

In recent years, a trend has emerged within the crypto community where projects unexpectedly distribute tokens to users who have previously engaged with their platform. This practice often results in significant gains for the recipients. However, it has also led to the proliferation of airdrop farming, where individuals engage in speculative activities to heighten their interaction with projects they believe might conduct an airdrop, aiming to secure a larger portion of the distribution.

Points represent a progression from this phenomenon. They are deployed to motivate specific behaviors while allowing the originating project’s creators to maintain control. Depending on the creators’ discretion, point holders might be compensated with tokens in the event of an airdrop or receive no rewards. The question arises: why distribute a token if the mere prospect of one proves sufficiently enticing?

There is also a regulatory perspective to consider. Some projects opt to issue points to stimulate activity in anticipation of an upcoming airdrop without making prior announcements.

The Purpose of Crypto Points

Cryptocurrency initiatives may adopt a “points” framework for various reasons tailored to their unique objectives and requirements. Here are a few ways in which a points system might be applied:

• Encouraging Participation: Crypto projects could leverage a points system to reward behaviors that advance the ecosystem. For instance, a project centered on decentralized storage could offer points to users for storing data or contributing storage capacity. These points could then be exchanged for tokens or other incentives, promoting actions that align with the project’s aims.
• Gamification Elements: Some crypto projects introduce points to inject a competitive and engaging element into their ecosystem. Users might accumulate points by completing tasks, reaching milestones, or participating in community challenges. Points might then be used to climb leaderboards, earn badges, or unlock digital rewards, enhancing community involvement and competition.
• Gateway to Tokens: Points might also be a precursor to obtaining a project’s native tokens. Users earn points through various activities and can later exchange these points for tokens at a set rate. This method can help distribute tokens more equitably or stimulate early participation and commitment before the full launch of the token ecosystem.

What Drives Web3 Projects to Adopt Crypto Points?

Several Web3 initiatives are increasingly adopting crypto points for various compelling reasons, mainly aiming to enhance user involvement, cultivate community engagement, and promote broader acceptance of their platforms. The rationale behind this includes:

• Mitigating Airdrop Farming: Airdrops are a reward mechanism for Web3 projects, distributing tokens to early and dedicated participants. However, Airdrop farming collects these rewards across multiple projects, often without contributing significantly. By integrating crypto points into their airdrop strategies, projects can encourage these participants to remain active within their ecosystem, thereby maximizing the value of their rewards.

• Promoting Active Engagement: Crypto points are awarded for a range of activities, including but not limited to utilizing decentralized apps, contributing to governance, liquidity provision, and the referral of new participants. Such incentives motivate users to engage more deeply with the project.

• Facilitating Community Development: The allocation of crypto points significantly fosters a dynamic and involved community. This engagement supports the project’s expansion and long-term viability through active participation in discussions, events, and various initiatives.

• Encouraging Wider Adoption: The prospect of earning crypto points is a lure for newcomers, encouraging them to explore and utilize the project’s services and applications, thereby driving adoption.

• Enabling Enhanced Governance Participation: Tying crypto points to governance rights allows holders to influence decision-making processes, including the strategic direction and development of the project.

Differentiating from Cryptocurrencies

Unlike cryptocurrencies, which possess inherent monetary value and are traded on various exchanges, crypto points do not hold any direct financial value. Additionally, whereas cryptocurrencies operate on a decentralized blockchain, the distribution and management of crypto points require specific oversight by the respective Web3 projects.

Illustrations of Crypto Points in Action:

1. Rainbow, a crypto wallet service, rewards users for engaging with Ethereum, executing asset swaps, and referrals.
2. Friend.Tech, a Web3-based social networking application, awards points for platform engagement, with the potential for these points to be converted into tokens.
3. The NFT marketplace Blur allocates points for listing and bidding on items and asset lending, with rewards varying based on the points accumulated, including ‘Care Packages’ of varying rarity.

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