May 23, 2024

Points vs. Airdrops: The Great Web3 Incentive Debate

Airdrops have long served as the go-to strategy for attracting users and liquidity to Web3 protocols. Traditionally, airdrops involved distributing tokens to participants based on criteria verifiable on the blockchain - often related to early engagement with the crypto project. This allowed new protocols to promote adoption, highlight features, and distribute governance rights or platform ownership to their communities.

However, in recent years, we've seen the rise of points systems emerge as an alternative incentive model alongside traditional airdrops. Points represent rewards given to users for completing actions or tasks within a crypto project. While these points may lack inherent monetary value, they incentivize participation and can be exchanged within the platform over time.

The emergence of points has stirred debate within the Web3 community. Are points an evolution of airdrops tailored for long-term growth? Or do they undermine the transparency and fairness that made airdrops so revolutionary? In this piece, we'll explore the key differences between crypto airdrops and points systems, analyzing the pros and cons of each approach.

What are Airdrops?

Airdrops serve as a means for projects to promote their platform, highlight new features, or, most commonly, introduce their upcoming native token to the market. They operate on a straightforward premise: users receive tokens based on predetermined criteria that are verifiable on the blockchain. These criteria typically revolve around user activity within the protocol, such as:

Standard/Raffle Airdrops

  • Simple sign-up or registration required to be eligible.
  • Often considered "free money" by recipients as no action is required.
  • Projects may use a raffle system for high-demand situations to select recipients randomly.

Bounty Airdrops

  • Completion of specified tasks necessary to qualify for the airdrop.
  • Tasks may include social media promotion, community engagement, newsletter sign-ups, referrals etc.
  • Requires time and effort investment from participants.

Holder Airdrops

  • Rewards loyal community members by distributing new tokens to holders of existing ones.
  • Recipients receive tokens without taking any action or effort.
  • Demonstrates commitment from holders who weathered market volatility.

Exclusive Airdrops

  • Participants selected or invited by project team or partners.
  • Selection criteria based on reputation, influence, expertise, contribution etc.
  • Users receive tokens without any effort or action required.

What are Point Systems?

Point systems are loyalty and engagement programs implemented by crypto projects and protocols to incentivize user participation. The points act as a reputation system, allowing projects to quantify and reward user contributions.

Unlike airdrops which provide one-time rewards, points systems encourage continual engagement over time. Additionally, points allow projects to gather valuable data on user behavior and preferences, enabling the team to tailor their strategies accordingly.

Here are some common use cases for point systems:

  • Sign-up Rewards - Users receive points for creating an account and completing their profile. This incentivizes user acquisition.
  • User Generated Content - Points earned for community participation through creating blog posts, tweets, social media engagement, etc. Rewards quality user generated content and can also incentivize user acquisition.
  • Referrals - Users receive points for referring friends and family to join the platform. Drives growth through word-of-mouth marketing.
  • Activity Tracking - Points granted for overall activity and interactions within the ecosystem. The more active the user, the more points received.
  • Task Completion - Points can be earned by completing tasks like watching educational videos, taking quizzes, reporting bugs, and testing new features. Incentivizes product engagement.
  • Loyalty - Additional points provided based on the length of time the user has been active within the community. Rewards long-term commitment.
  • Surveys & Feedback - Users may receive points for providing feedback via surveys, interviews, focus groups, and other mechanisms. Gathers user insights.
  • Promotions - Special point promotions, challenges, and campaigns create fun, time-bound incentives for participation.

Debating Airdrops vs Points Systems

The rise of points systems as an alternative incentive model has stirred up quite a debate within the crypto ecosystem. While crypto airdrops have long served as the go-to strategy for attracting users and driving engagement, points systems offer some distinct advantages as well as drawbacks compared to airdrops. Framing this as an "either/or" scenario may be overly simplistic - both models have merits and can co-exist within a well-designed tokenomics structure. However, it is worth analyzing the key trade-offs between these two approaches.

Pros of Airdrops

  1. Tangible Rewards: Airdrops provide recipients with an immediate, quantifiable reward in the form of tokens. It has a clear monetary value and utility within the project's ecosystem. This tangibility promotes transparency between the project team and community members.
  2. Early Engagement Incentive: By rewarding early adopters and users for specific actions, airdrops strongly incentivize active participation and engagement with the project. This helps drive early usage and adoption at a critical stage when the project is looking to gain traction and build its community.
  3. Fair Distribution: Airdrops allow for the fair distribution of tokens based on transparent, verifiable criteria. Distribution is programmatically executed on the blockchain according to predetermined rules, ensuring users receive their allotted rewards based on their proven contributions, activity, and participation within the project. This engenders trust within the community.

Cons of Airdrops

Airdrops are a powerful tool for driving early adoption and creating excitement around new blockchain projects. However, they come with some potential drawbacks:

  1. Lack of Long-Term Commitment: Airdrops may attract users who are solely interested in short-term gains, leading to a lack of long-term commitment and engagement with the project. For example, following the $UNI airdrop, a 75% of recipients chose to sell their tokens within the first week. The dumping continued, at 80% within the first 30 days and 85% within the first 90 days.
  2. Risk of Dumping: Research suggests that a significant portion of airdrop recipients tend to sell their tokens shortly after receiving them. This indicates a lack of sustained interest or investment in the project by those users. Mass dumping of tokens can negatively impact the token's price and overall perception of the project.
  3. Limited Control Over Distribution: While airdrops offer transparency in distribution, the project team faces challenges in controlling how recipients ultimately utilize their tokens. This could potentially lead to unintended consequences such as market manipulation if a large portion of airdrop tokens are immediately sold. Teams have limited ability to ensure airdropped tokens align with their long-term goals.

Pros of Points-Based Systems

  1. Behavioral Insights: Points systems enable developers to track user behavior and preferences, allowing for targeted incentives and optimizations to improve the project's long-term sustainability.
  2. Long-Term Nature: By rewarding users for their sustained engagement and loyalty over time, points systems cultivate a deep sense of commitment and ownership in the project's growth and prosperity. This long-term orientation attracts users who are genuinely interested in the project's objectives, rather than short-term speculation.
  3. Incentivized QA Testing: Points can serve as a mechanism for incentivizing users to participate in quality assurance (QA) testing, provide community feedback, and contribute to the project's development and improvement. The accrual of points for such efforts allows users to feel valued for their participation, while providing the project with critical insights to drive enhancements.

Cons of Points-Based Systems

  1. Discretionary Nature: Points systems rely heavily on the discretion of the project team when it comes to distributing rewards. This means there are concerns around fairness and transparency, as the criteria for earning points could change at any time without notice. There is a risk that rewards distribution could be manipulated or certain users favored over others.
  2. Risk of Revocation: Unlike airdrops which provide guaranteed rewards upfront, points face the risk of being revoked or the criteria changed retrospectively by the project. This uncertainty means users' efforts could potentially go unrewarded, leading to dissatisfaction. Points accumulated over months or years could disappear due to factors outside of the user's control.
  3. Less Tangible Rewards: Points generally do not have an explicit monetary value or utility at the outset. Their future value is uncertain, making the rewards less tangible and diminishing motivation. Without short-term benefits, users may lose enthusiasm to participate as actively as an airdrop might warrant.

Key Takeaways

The debate between airdrops versus points systems reflects a broader discussion occurring within the Web3 ecosystem - how do we build engaged communities focused on long-term growth rather than short-term gains? There are merits to both approaches.

Airdrops are best suited for protocols looking to:

  • Quickly distribute tokens and launch their network
  • Attract a wide initial user base
  • Reward early adopters

However, airdrops run the risk of attracting short-term speculators rather than long-term community members. Mass token distributions could also lead to dumping.

Points systems excel at:

  • Tracking detailed user behavior insights
  • Incentivizing ongoing participation
  • Building lasting community loyalty

But points lack the direct monetary appeal of airdrops. And reliance on the protocol's discretion raises concerns around transparency.

There's no one-size-fits-all approach. The optimal strategy depends on the project's specific goals and community. The key is to ensure incentives align with long-term goals, promoting sustainable growth and mutual value creation. With proper strategy and community-centric design, both models can become powerful engines of engagement.

Drive User Acquisition and Retention All in One Place

At Postmint, our goal is to simplify the lives of marketers, product marketers, and community managers. That’s why we’ve built an infrastructure that allows you to easily collect, organize, manage, and reward user contributions with either points or tokens.

Our platform allows you to tailor your customize your campaigns, set clear guidelines for users, and automatically assign points or tokens based on specific criteria — all of which can be adjusted to fit your needs. In user-generated content (UGC) campaigns, we ensure fair compensation tied to the value provided while maintaining effective sybil resistance. You can choose from various requirement types, including token-gated, application-based, and more, to make sure the right contributors join your campaign.

Beyond this, the platform also provides you the option to create referral links and multi-layered affiliate programs, tracking on-chain conversions. Utilizing Postmint for your campaigns will help you build brand trust, increase brand visibility, enhance user engagement, and ultimately driving conversions.

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