Points Programs in Crypto Consumer Apps - Third and final part -

Introduction to Part 3: Benefits of Onchain Points

In this third and final part of the article, we will explore how onchain points programs can revolutionize consumer applications on the blockchain. We will examine key benefits such as enhanced interoperability, low transaction costs, and the additional economic value that can be generated. Additionally, we will discuss how pricing models and liquidity provision for points can maximize their advantages and transform the user experience.

BENEFITS OF ONCHAIN POINTS?

Points programs are an essential strategy for consumer applications on the blockchain. The decision to keep these points on the blockchain (onchain) or off it (offchain) significantly impacts interoperability and liquidity. Here, we will explore the benefits of onchain points and their impact on consumer-centric blockchain applications.

1. Interoperability of Points: Using blockchain to track points can facilitate the creation of an ecosystem of applications around them, leading to exciting new user experiences. For example, in a shopping context, other companies might want to identify the most loyal customers from other stores and target their offers accordingly, similar to how airlines use status match programs. For users, the added value of interoperable points across multiple applications can make them more appealing to accumulate, reducing the burden on each individual app developer to drive their own utility.
2. Very Low Onchain Transaction Costs: Thanks to advancements such as Ethereum Layer 2 solutions and blockchain projects like Solana, it is now possible to create points with very low transaction costs.
3. Potential Additional Economic Value: When points are onchain, they can potentially be traded, as anyone can create a pool, for example, on Uniswap, allowing for their exchange. This provides liquidity to the token and the opportunity for a liquid market to emerge, facilitated by a third party. Moreover, the platform can focus on creating value for the application, while the management of the treasury associated with a token is delegated to other actors, avoiding the challenges of launching a token.

a) Bonding Curve Model for Token Pricing: Pricing models are now based on bonding curves rather than order books. This means the price of points is defined statically by a function, as seen with Friend.tech. The buying and selling prices are set by contract, creating liquidity so that someone can sell a point. For example, if the initial price is $1 and 1 token is purchased, the value increases, and the next price is $1.10. If the token is returned, the initial price goes back to $1.

b) Earning Benefits Through Fees: When liquidity is created through a pool with a bonding curve, the initial price is the minimum price it can quote. The issuer earns money from fees, not from the value of the points. The more market turnover there is, the more fees are generated.

c) Low Cost of Providing Liquidity to Points: With a relatively low amount, such as $1000, sufficient liquidity can be provided. This contrasts with the problems associated with traditional market makers, which required much more liquidity and faced various challenges.

d) Variety of Bonding Curves: There are various bonding curve functions, from those where the price remains constant to those where the price oscillates within specific ranges. This flexibility allows for modeling the price of points and offers business opportunities in providing this service.

STRATEGIES TO CONSIDER FOR POINTS

The effective implementation of these programs requires a deep understanding of how they influence user behavior and how they can impact the overall dynamics of the project. We will explore various strategies and key considerations related to points programs in Crypto Consumer applications, addressing aspects such as user behavior changes, the types of users attracted, and the importance of maintaining ambiguity in the value of points.

1. Behavior Change: Points programs induce changes in user behavior to earn more points. It is essential to carefully evaluate the incentives offered to avoid excessive distortions. For example, when rewarding certain activities, it is crucial to consider whether these truly drive the desired goals of the project. Points can condition users to seek earning opportunities they might not otherwise consider. While this can lead to a temporary increase in activity, it could be detrimental to the business's long-term health. Therefore, it is fundamental to establish clear metrics to understand the value of user actions and ensure that the KPIs encompass the project's ultimate goals.
2. Type of User: Points programs influence the types of users who use the application. They not only modify the behavior of existing users but also alter the composition of the user base as a whole. This change can be beneficial if the new users attracted have a valid reason to stay on the platform or if they contribute positively to the business model. However, it is crucial to consider that users attracted solely by incentives might abandon the platform once these disappear.
3. Ambiguity in Value: Maintaining ambiguity in the value of points provides flexibility for the project. Instead of linking points to a specific economic value, it is advisable to keep their value vague. This allows for adjusting the value of points as needed to manage costs and test different incentives while preserving a fun experience for users. For example, by offering points redeemable for "amazing things" rather than a precise monetary value, excitement and user interest are maintained.

CONCLUSIONS

Employing a points program drives users to progress through the conversion funnel and modify their behaviors in the real world, leading to significant impacts on long-term retention and referrals. Implementing onchain points has the potential to unlock exciting new experiences for both Crypto Consumer Apps and their users. However, the effectiveness of a points program lies in continuous experimentation and iteration, as well as a deep understanding of the economic impacts and rigorous tracking of KPIs. Ultimately, the successful implementation of these programs not only benefits the applications and their users but also contributes to the continuous growth and evolution of the Crypto Consumer Apps ecosystem.

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References:

1. How Cryptocurrency Loyalty Reward Programs and Tokens Work - https://blinqnetworks.com/how-cryptocurrency-loyalty-reward-programs-and-tokens-work/
2. Article Variant - Li Jin - https://variant.fund/articles/lessons-points-programs-crypto-apps/ -?
3. Fat Points thesis - Alberto Toribio https://www.dhirubhai.net/events/fatpointsthesis-laprimeranarrat7152931867388698624/comments/