Under the points system, the project owners are "counter-buying" the project owners

Author: Xiyou, ChainCatcher

"The points system is a poisonous means for the project party to manipulate the market. In the future, we will no longer participate in interactive activities based on points." This is the latest statement of an old OG. Excluding points and order-brushing projects is his new criterion for screening interactive projects.

After EigenLayer released the conditions for the airdrop of tokens EIGEN on April 30, the controversy about the points airdrop has not stopped. That night, the Bankless live broadcast room, which was live with the founder of EigenLayer, even closed user comments.

In addition to the airdrop share being lower than some users' expectations and the airdrop tokens being unlocked linearly in batches, EigenLayer also restricted the user's IP address when receiving the airdrop, resulting in users who had originally obtained a large number of points being ineligible for airdrops because their IP addresses belonged to the blocked area.

The EigenLayer airdrop controversy has pushed the point system model to the forefront, tearing off the fig leaf of the point system reward, and the long-hidden problems of insider trading, shrinkage, and additional issuance under the point system have also erupted.

The sentiment of boycotting point-based activities has also reached an unprecedented high, and the speech of refusing to participate in point-based activities has begun to spread in the crypto community. The founder of Compound said that "the era of points is over", and the founder of the "airdrop pioneer" suggested that the project "issue tokens instead of points". The once popular point system seems to have declined in terms of reputation.

The controversial "points system": shrinkage, insider trading, big players' games, opaque calculation rules

Before the Eigenlayer airdrop incident, the points system had already exposed many controversial issues: insider trading, shrinkage, PUA users, big players' games, opaque rules, etc. The Eigenlayer controversy only brought the long-hidden problems of the points system to the fore.

"Insider trading" and big players' games are the most criticized issues.

Take the Eigenlayer airdrop as an example. It was not announced until April 30 that its airdrop snapshot date was March 15, but multiple big players' addresses seemed to know the inside information in advance, and "coincidentally" transferred all the deposited tokens the day after the airdrop snapshot.

For example, legendary trader GSR transferred out his wBETH worth $7 million on March 16, just one day after the Eigenlayer snapshot; Binance's newly funded wallet also withdrew all the wBETH worth $13 million deposited in EigenLayer on March 16.

These strange and precise transfer times make users have to suspect that these people have inside information.

Layer2 network Blast, which has promoted the point system, was pointed out by community users that Blast had secretly issued a large number of gold points to certain Dapps without making any announcements or public notices.

The decentralized GPU project io.net, which was popular for its points, was questioned by users in April for having a point-based insider warehouse, and the project owner and VC and other institutions were suspected of jointly stealing points by disguising themselves as ordinary users.

In addition, the points system projects have frequently encountered problems such as points reduction, data errors, and PUA users due to the opaque and unclear calculation rules.

The same thing happened after io.net officially upgraded the system, and many GPU mining users found that their platform points data showed errors. Later, the official said that the points value displayed on the website only came from internal tests. These tests were based on some snapshots and some placeholder values ​​in the past, and did not reflect the user's real points in the Ignition reward plan. They are already working on solving this problem. However, the current io.net points data confusion, multiple cards are counted as a single card, and other problems have not been solved.

In February, the re-staking protocol EtherFi was caught in a controversy of "points reduction and stealing points". Some community members responded that under the same number of pledges and pledge time, EtherFi had about 10% less Eigenlayer points than Renzo, the re-staking protocol. The official reply stated that the points data displayed on the protocol homepage was indeed wrong, and the EigenLayer points actually obtained by users were much higher than the current erroneously displayed data.

In March, the new points gameplay released by Blast mainnet was accused of PUA. The new rules require users to migrate ETH points to the mainnet and enjoy a 10-fold expansion, but users need to pay a gas fee of about US$50 for migration, which is too costly for small and scattered users, and users find that the expansion coefficient is a random number of 0-10 times after migration.

Although Blast officials later stated that the UI calculated it wrong and the vulnerability has been fixed, it also left a criticism that the points calculation rules are not transparent.

But for users who have not migrated to the mainnet, it means that there is no chance to double the points, and the original points value will be diluted and depreciated. If you want to launch a new Dapp, you need to withdraw funds to the main network and wait for more than ten days before you can operate it, which makes it difficult for participating users to get off the tiger. If you don’t continue to put money and act as a “slave” to interact with Dapp, your points will be diluted by others.

Some community members said that Blast took users on a car that they couldn’t get off, which not only wiped out their early contributions, but also diluted their points that they dug out with real money, and also had to bear the financial risks of new projects such as Rug.

Some netizens described that the gameplay of Blast main network points is equivalent to your mother-in-law saying that a 100,000 yuan gift is enough for marriage, but on the night before the wedding, the woman suddenly said to add some more money.

In addition, since the current point system is mostly calculated based on the amount of funds deposited and the time dimension, the financial strength of large households can form a unilateral crushing, which has obviously become a “game for large households”.

In the EigenLayer airdrop, Sun Yuchen alone received 3.55 million EIGEN airdrops, and the total number of airdrops in the first quarter was 83.5 million, accounting for 4.26% of the total.

Regarding the current project's point system activities, crypto user @sunlc_crypto said on social media that he would not participate in all the order-brushing and point-brushing projects in the future.

Everyone is desperately brushing transaction volume points, but the final right to interpret the rules is entirely in the hands of the project party. How to exchange points for tokens, and even whether to exchange according to points, is up to the project party to decide.

Behind the controversy over the points system: input and output are not proportional

At this stage, the points system gameplay of most projects is similar, mainly concentrated in the simple stage of "recruiting people, depositing funds, earning points, and striving for airdrops". The rampant points gameplay has become aesthetically fatigued and even criticized.

Ken (pseudonym), an operator of crypto projects, said in an interview with ChainCatcher that there is no problem with the points system itself. Its essence is to allow users to interact more actively with the project in exchange for points, and to transform qualitative measurements into quantifiable indicators. If used properly, points are a good way to collect relevant community information about the project.

"Behind the current Web3 points controversy is the contradiction that the user input and output ratio are not proportional." Ken explained that the core of the design of the points system is to achieve a balance between the input and output of the platform and the input and output of the user.

In the Web2 world, the most important parts of the point system design are: where the points come from and where the points go, that is, the acquisition of points and the consumption of points.

From the perspective of the platform, the core of the point system design is to set corresponding point reward tasks according to what the platform wants users to do, and users can get corresponding rewards after completing them. After the points are issued to the user's account, we must find ways to guide users to consume the points, and continue to bring output while consuming, so as to increase more revenue for the platform.

From the user's perspective, the sense of value of points is the first, that is, whether the things that can be exchanged for points are valuable, whether they are what they want, and whether the time and energy cost of obtaining points matches the value of point exchange.

In the current Web3 world, the point system is mainly an incentive tool for project parties to use the expected token airdrop to acquire customers and attract funds. Users need to attract people, interact, deposit funds, earn points and then win a possible airdrop opportunity, and this opportunity is not 100% certain.

The project party gains real TVL and user data through the points mechanism, and the valuation also rises accordingly.

Crypto user 0xminion once said on social media that the project party’s points are hinting to users, come and farm with us, we will have tokens soon, if you make our indicators look good and take the risk to try our products, you can accumulate some points; some points do not welcome users who make money, but are happy that you come to deposit and try our products, but will exclude you from the token airdrop qualifications.

For example, Solana's ecological derivative Drift Protocol recently launched an airdrop several months after launching a points trading activity. However, the reference basis for the airdrop was not based on points, but was distributed to OG users. Early users who were aiming for points were left with nothing, and there were potential financial and time costs.

In addition, the current points system is mainly based on deposits or trading volume. The acquisition of these points is based on indicators such as the number of assets, participation time, fund size and number of transactions, and there is a certain withdrawal restriction period, that is, users need higher time and financial costs than in the past airdrop form.

So that under the point system, the airdrop income that the users finally get may not be higher than before, and the final input-output ratio may even be a loss, which is often called "reverse robbing".

Some users in the community complained that the point system is the poison used by the project party to make money by airdropping. With the help of the expected airdrop of the point system, a group of users and TVL were attracted, and the valuation of the project party was continuously increased to obtain more investment. In this process, the cost of the project party was 0. Even if there were some airdrops later, the project party issuing these tokens did not spend any cost, and the users invested real money, energy and time.

The point airdrop income that users finally obtained does not match the input-output ratio, which is the root cause of the criticism of the point system.

In addition, due to the large-scale private placement and high FDV airdrop model brought by the points, the total value of the airdrop tokens finally obtained by users is far lower than expected. The tokens have been falling since they were launched, and the final profit is calculated. It can be said that both the wife and the army have been lost.

Business experience derived from the points system

Because it is a game of "making money out of nothing" and there are successful cases in the past, for project parties, the points system is still a means worth trying.

Last December, the staking network Blast launched by Pacman adopted a points incentive strategy. Through a series of invitations to users to fission and the points system incentive of open airdrops, the TVL exceeded 100 million US dollars in one day after the agreement was launched, and attracted a huge amount of funds of up to 2.3 billion US dollars within three months. Blast officially opened the prelude to the craze of the points system.

More and more Web3 projects have begun to join the army of point rewards, and have launched their own point incentive operation growth strategies. Users can get points by participating in some designated tasks, and the higher the points, the greater the probability and quantity of airdrops will be.

For example, the Layer2 network has issued coins, Arbitrum, Starknet, and Scroll and Linea, which have not issued coins; the exchange Backpack, derivatives Drift, and AI products io.net in the Solana ecosystem; Bitcoin ecosystem Layer2 network B²Network, BounceBit, etc.; and the rise of the concept of Eigenlayer re-staking has pushed the popularity of the point system to a new climax. With the core of mining Eigenlayer points, re-staking projects such as Renzo, Puffer Finance, Eigenpie, Swell, KelpDao, and Ether.Fi have launched a point nesting battle, which can double mine or kill two birds with one stone.

In February this year, The Block reported that 14 projects have issued more than 111.5 billion points in the market.

Amid the hype of points, some project parties saw the opportunity to start a business and derived PointFi products such as a dedicated points trading platform and third-party points design.

In April, crypto KOL @MrBlock posted a message reminding that the points market will be the next token market, reminding users not to miss it.

In December last year, the Whales Market, an OTC market for points trading, was established, supporting users to trade their earned points in a peer-to-peer manner, solving the problem of how to price points.

For example, the current price of Blast points is $0.00009, the price of Eigenlayer tokens before going online is $0.198, and the price of BounceBit points is $0.012.

According to Dune data, as of May 10, the Whales Market platform has completed a transaction volume of approximately US$110 million and has more than 30,000 users.

Currently, there are other points trading platforms such as Michi Protocol, PointMarket, and Pendle, which tokenizes the future income of points.

There are also third-party products designed for points, such as the on-chain points management tool Stack, which completed a $3 million seed round of financing led by Archetype in March.

Web3 reputation platform Trusta Labs is also working on building a fair and auditable third-party points platform, allowing project parties with points needs to publish their own points on this platform.

The emergence of the points trading market allows users to obtain price discovery for points, and combined with the project's clear points acquisition system, it is possible to estimate the approximate potential rate of return, so that users can also lock in points profits through trading platforms in the early stage to avoid being "reversely robbed".

How to design a reasonable points system?

Regarding the opaque rules of points, crypto user Yelo (pseudonym) told ChainCatcher that the current points systems in the Web3 field are mostly designed and issued by the project parties themselves, and the points are off-chain, which means that the points system project parties can adjust at will; and the supply of points can also be unlimited, and the way points are used and redeemed can also be modified, that is, the final right of interpretation and use of points are controlled by the project party issuer.

Simon, CTO of Trusta Labs, an on-chain reputation platform, also said in an interview: "Off-chain points are counted and stored based on the centralized project database. There is indeed the possibility that bad project parties will conduct insider trading on fake accounts and fake points. At the same time, the total amount of points issued, the subsequent token exchange ratio and method have never been determined and disclosed like TGE."

To address this problem, points can be put on the chain or on a third-party supervision platform to make the total distribution of points in the system and the historical records of the distribution method transparent. There are already products on the market that put points on the chain, such as Stack, which can put points on the chain in the form of ERC20 and support the traceability of each point distribution data.

He also emphasized that when designing the points system, the project party should pay attention to setting different weights for different reward behaviors. For example, in pure pledge fund incentive points such as Blast and Eigenlayer, the top rankings are all large households with strong capital investment. This method will exclude a large number of real users who are willing to participate in the long tail, and may not necessarily obtain the project's broad support in the community.

In addition, in terms of the use scenarios of points, crypto user Nancy (anonymous) responded in this interview with ChainCatcher that the actual use of Web3 points at this stage is relatively simple. In addition to being used to win airdrops and exchange tokens, there are no other use scenarios. In the Web2 world, points have multiple uses. In addition to exchanging goods, you can also enjoy discounts or other benefits.

"Can the points of Web3 projects be designed for various types of rewards, from discounts, product benefits, to project ownership and governance rights, and then directly affecting income through them?" Nancy suggested.

Regarding how to design a reasonable points system, Katiewav, a researcher at the crypto agency Archetype VC, once wrote that the main goal of the project points system should be to encourage product use rather than encourage points accumulation. Ensuring that the points program can eventually bring users back to its own product ecosystem is the key to successfully launching the flywheel driven by points growth, rather than encouraging potential user loss behaviors such as points airdrops. Directly converting points into product advantages and helping products to provide feedback, improve, and test specific features is the long-term path.

She cited the social platform Farcaster Warps as an example, where points earned on the platform can be used as gifts for other users or used to purchase NFTs at a discount on the platform. This clear use scenario for points reduces the risk of speculators participating.