Every few years we see a new meta drive the narrative around crypto.
First it was ICOs. Then DeFi. And most recently NFTs.
They all share one thing in common - connecting with an audience of regular people who have never touched crypto before.
That’s why I’m excited about the new meta forming around points.
And more specifically - points that are onchain.
Points are gamified rewards units with a theoretically infinite supply.
Think airline miles, credit card points, loyalty programs - systems that everyone has used in their daily lives.
They allow teams to encourage different behaviors and train users to perform key actions which drive growth.
These systems are constantly modifiable - giving founders the flexibility to tweak their formula and learn from different design loops as they test and upgrade their products.
As we’ll dive into later - points are a perfect prelude to a governance token and a core focus for consumer apps building on crypto rails.
Points train users to perform value generating actions for the hope of future ownership.
They create an incentive to return to an app and a dopamine boost from an ever-increasing balance.
Points are to consumer applications what governance tokens are to protocols.
Assuming the main goal of consumer apps is to reach billions of users - we need to recognize that the average intelligence and depth of knowledge a user has will likely diminish as usage increases.
This challenges founders to create systems which are extremely easy to understand, and fun to play.
Plus - points reward actions which historically were not a focus for onchain companies like creating viral moments on Instagram and Twitter - innately reaching a net new demographic of users.
In today’s landscape - projects leveraging points represent a forward looking class of founders focused on social growth and consumer adoption.
The list of projects experimenting with points are growing by the day.
While each of these vary in their implementation - they have all captured the attention of crypto users thanks to the common belief that points will one day translate to tokens.
Points started to pop up around the SocialFi narrative - and are now entering a new chapter where founders are realizing they can get most of the benefits of launching a token without having to actually launch a token.
As someone who’s worked with dozens of teams on launching a governance token - it’s no secret that the process is a nightmare.
From setting up off-shore entities to designing an airdrop, marketing that airdrop, creating governance forums, delegate committees, multisigs, treasuries and managing liquidity - it is unlikely that the next generation of crypto founders will have the patience (and legal clarity) on how to formally launch a token for their consumer app.
This is why points create an exciting middle ground - they allow founders to play around with what it feels like to launch a token in the early stage of their product in a way that is simple and digestible for mainstream consumers to understand.
Plus - if successful - they get the added bonus of those points actually being worth something.
But there’s one key distinction worth diving in on.
Are the points onchain?
Points being onchain creates an opportunity for a liquid market to emerge.
Stated another way - you can sell onchain points for cash.
In a world where we all try to glorify the potential of what web3 will enable - time and time again we’ve seen crypto’s success has been allowing people to buy and sell speculative digital assets.
It’s become clear that the vast majority of users do not care about governance - and that it largely only exists to give projects with a token the guise of being decentralized.
So - onchain points create an interesting dynamic where they remove the need for a treasury and governance.
Instead - 100% of the focus can be around how an application creates and captures value. And how users place a value on the currency of that network.
More importantly - onchain points are uniquely enabled by the emergence of L2s (and soon L3s).
Onchain points were simply not possible until now. Transaction fees were too high to process millions of real-time transactions for $0.10 or less.
Now - networks like Optimism and Arbitrum have created the ability for onchain points to work at scale.
The next question naturally becomes - how do you price onchain points?
Instead of mapping out a total supply and token distribution - onchain points create the first situation for bonding curves to have a true moment in the sun.
By mapping points on a curve - teams remove the need for liquidity pools and crypto-native actions which create friction.
Instead of examining the marketcap and FDV of points - there is simply one price.
The price it costs to purchase points, and the price you can sell them for.
The purchase of every new point creates liquidity for someone to sell points.
To kickstart the bonding curve, teams should be prepared to invest their own capital - a dynamic which should hold them accountable for the points which are being issued and given to new users.
If the points aren’t used in an encouraging way to generate value for the network - the team may lose their contribution.
This creates an interesting opportunity for deeply engaged players to earn points with tangible value for creating value for the network.
It also creates an opportunity for whales to bet on the collective success of the application without having to play it themselves. They simply purchase a large amount of points early and sell them as the application sees adoption from mainstream users.
Or - they purchase points in bulk as power users of an application. Allowing them to trade dollars for status. A playbook as old as the time.
In the event that an app is successful - the number of inflows from users purchasing points will exceed the total outflow. Thus resulting in an increased value of each incremental point and a healthy market of trading volume.
There is likely no one right way to create a priced point system.
However - assuming onchain points will scale to billions of users, the delta on a successful point system probably looks something like an increase of $0.01 per point to $0.05 per point. (5x) Not $0.01 to $1. (100x)
Now while this might not seem as attractive to moon boys - early users will see significant upside while new users *should* never be boxed out from being able to play.
It will create real financial opportunities for power users of a given app - and shift the focus from making 1000x off a memecoin to earning a real sustainable income for regular people.
What sounds more realistic - millions of people becoming millionaires off a $10 investment or millions of people earning $100/mo from putting consistent time, effort and energy into their new favorite app?
And best of all - it creates an immediate business model for teams building consumer applications.
Simply take a fee on the sale of points.
If people like the app - they will purchase points to boost their status within the system.
So long as people are buying points - people can sell points.
And so long as they can sell points, the business makes money.
If you’re a founder looking to build an onchain point system - I highly recommend reaching out to Stack.
Keep in mind that points are not all sunshine and rainbows.As articulate in this article from Li Jin - points in the absence of product market fit can be very dangerous.
It’s very important for teams to design games that are worth playing in the absence of points - and to use points to layer on the gamification of that experience.
A great reference here is DuoLingo - where the core focus is to learn a new language, and points are a healthy incentive to keep studying.
Additionally - the only way in which onchain points have an active value is if they can create a system where more users are willing to keep their points in a game instead of selling them.
For crypto-native products - be mindful that points are a clear signal to your community that you intend to launch a token at some point in the future.
This means that while you buy yourself some time - the moment you launch a points system you are basically saying to the crypto world “we are launching a token”.
Everyone is always trying to figure out what the new meta will be.
What if crypto’s killer use case is selling points for cash?
In a world about creating financial accessibility - creating opportunities for users to earn a living for the value they create lands within crypto’s overall intention.
This article is meant to encourage founders building consumer applications to think deeply about integrating an onchain points system into their product.
And if you’re looking for feedback on your system or funding to bring it to life - please reach out to me at firstname.lastname@example.org or directly on Farcaster @coopahtroopa.
Bring on the Uniswap for points.
[EDIT - ALL $POINTS HAVE BEEN CLAIMED!] PS: First 10 people to DM me “Points points points” on Warpcaster will get 1000 free $POINTS