Driven by blockchain technology, the user incentive model of Web3 has evolved from the initial use of tokens, whitelists, credentials, task platform points, and Soulbound Tokens (SBTs) to the later issuance of points by projects themselves.

In the current cycle, PointFi (Point Economy) is emerging as a new growth strategy, quickly gaining attention in the market. By linking user engagement with digital points, this model incentivizes users and spawns arbitrage and trading markets, creating a massive ecosystem of points.

This article will delve into the types of participants in the PointFi ecosystem, its future potential, the beneficiaries, and the opportunities it presents, exploring the possibilities this emerging field brings.

Introduction: The Evolution of Crypto Incentive Mechanisms

Reward mechanisms such as points, membership rewards, and frequent flyer miles in the Web2 era have existed for many years. However, in the Web3 space, these marketing models and reward systems are being reborn in new forms. Currently, point-based reward mechanisms have become a focal point of Web3.

The evolution of cryptocurrency reward mechanisms reflects the rapid development of the industry. From the ICOs and direct airdrops of tokens in 2017, to liquidity mining during the “DeFi Summer” of 2020, and the large-scale airdrops by Uniswap, each stage has its unique characteristics and challenges. While ICOs were simple and direct, they struggled to retain users; liquidity mining, though it invigorated DeFi, led to the problem of “mining-extracting-dumping”; and Uniswap’s airdrops pioneered linking tokens with user behavior.

In recent years, the emergence of integrated task platforms such as Galxe, as well as the success of projects like Blur and Tensor, has further promoted the close integration of point systems with user interaction. This new reward mechanism not only attracts new users but also effectively enhances the loyalty and activity of existing users.

By 2024, the points ecosystem had rapidly developed, forming a new growth sector known as “PointFi.” Despite providing users with more opportunities to engage, the complexity of the ecosystem remains a challenge for new teams and users trying to understand and adapt.
To better understand this emerging field, the following sections will explore the fundamental knowledge, operating mechanisms, and characteristics of crypto point systems. We will provide a comprehensive analysis of PointFi, including its current development, challenges, and future potential. This will help readers grasp the point economy’s developmental context and future trends.

From Tokens to Points

With the development of the cryptocurrency industry, project teams have begun exploring new user incentive mechanisms. Venture capital firm Archetype put forward an interesting perspective: compared to traditional token airdrops, on-chain points could be a more promising marketing tool. On-chain points differ from tokens in that they offer greater flexibility for project teams and are easier for users to understand and accept.

On-chain points combine traditional points systems’ flexibility with blockchain technology’s transparency. Unlike tokens, points typically lack financial properties and can be easily adjusted by the issuer without immediately affecting market dynamics. This allows project teams to design and adjust reward mechanisms more flexibly while avoiding the pressure of having to finalize all the details of token issuance from the start.

In practical applications, we’ve already seen some interesting experiments. For example, Blur uses a points leaderboard to incentivize users to engage in bidding and lending activities, while Rainbow rewards users with points for conducting transactions within their wallet. These cases demonstrate the potential of point systems in driving user engagement and fostering loyalty.

Limitations of Traditional Web2 Points Programs

Although both Web2 and Web3 points systems are designed to reward users, there are significant differences between the two. Traditional Web2 points programs, such as credit card rewards or coffee shop loyalty points, are typically issued by businesses to enhance customer loyalty. These programs have succeeded in improving customer retention and encouraging spending but still face several limitations, such as a limited scope of rewards, lack of portability, and company-dictated redemption policies.

In contrast, Web3 technologies have brought about revolutionary changes to loyalty programs. Web3 points systems, based on blockchain and smart contracts, are earned through completing specific tasks and are more closely linked to tokens. This innovation makes the reward process more liquid, transparent, and customizable, granting consumers true ownership of their interactions with brands. Web3 not only allows customers to earn, trade, and redeem rewards instantly but also creates a new, flexible asset class of tradable tokenized loyalty points.

The advantages of Web3 points are evident in several ways: through wallet-based logins and NFTs, brands can offer highly personalized rewards and more precise behavioral analytics; Web3 programs measure purchases and provide in-depth insights into overall consumer engagement. Blockchain technology ensures the security and transparency of transactions while reducing the risk of fraud. Most importantly, Web3 supports the interoperability and portability of loyalty points, fostering a more open and flexible ecosystem and opening up new possibilities for the relationship between brands and consumers.

Web3 Crypto Points and Their Characteristics

Crypto points are a reward system based on blockchain technology, combining the concepts of traditional loyalty programs with the characteristics of cryptocurrencies. It operates as a gamified mechanism, typically issued by crypto projects or platforms, where users can earn points by participating in specific activities, completing tasks, or holding certain assets. Although the direct monetary value of these points has not been universally recognized, they are often linked to token issuance and airdrops.

Crypto points have several unique characteristics that make them an important strategy for Web3 projects to attract and retain users:

• Decentralization: Based on smart contracts, crypto points do not require a central control authority.
• Tradability: Points can be freely traded on decentralized exchanges (DEX) or other platforms.
• Gamification: Features such as leaderboards, badges, and other interactive elements increase user engagement.
• Versatility: Points can be used for various purposes, including governance voting, staking for rewards, and more.
• Programmability: Projects can design complex point mechanisms, such as auto-burning, dynamic issuance, and other custom features.
• Flexible Token Distribution: As an intermediate step in token distribution, points offer a more flexible user incentive mechanism.

These features make crypto points a flexible user incentive tool that not only increases engagement but also creates additional value flow channels within the ecosystem.

Why Crypto Points Systems Are Gaining Popularity

Combating Airdrop Mining:
Airdrops typically reward early supporters by directly sending tokens to participants’ wallets. However, this method can present issues. By incorporating crypto points into airdrops, participants are incentivized to stay active within the ecosystem to derive economic benefits from these points, rather than simply receiving free tokens and abandoning the project.

Increasing User Engagement:
Crypto points incentivize users to engage with decentralized applications (dApps), participate in governance, provide liquidity, or refer new users. This strategy encourages users to interact more deeply with a project, enhancing their sense of participation and investment in the project’s success.

Strengthening Community Bonds:
Crypto points play a crucial role in community development, encouraging users to earn and accumulate points, which drives them to participate more actively in discussions, events, and other community-driven activities. This active participation fosters the growth and long-term sustainability of a project.

From Off-chain to On-chain: The Evolution of the Points System

What are Off-chain Points?

Off-chain points are a reward system managed outside the blockchain, typically under centralized control. They are usually stored in private databases managed by companies or service providers. This system is similar to traditional Web2 loyalty programs but has also found widespread use in the cryptocurrency space. For example, Blur introduced “listing points” and “lending points” to incentivize user behavior, potentially rewarding users with BLUR tokens. Similarly, Rainbow Wallet has started using Rainbow Points to reward users for their transaction activities. While these innovative point systems primarily operate off-chain, they are gradually becoming essential tools for attracting and retaining users within the cryptocurrency ecosystem.

Controversies and Solutions for Off-chain Points

Despite the significant benefits points systems offer to projects, past cases have highlighted two major issues: insider trading (or “mouse warehouse”) and the monopoly of large holders. These problems not only affect the fairness of participation for regular users but can also harm the long-term development of the project.

1. Insider Trading (Mouse Warehouse Issue)
   Insider trading in the form of “mouse warehouses” involves project team members or early investors gaining improper advantages by using internal information. This behavior leads to market volatility and damages community trust. Several large projects such as IO.NET, ETHERFI, EIGENLAYER, and BLAST have faced similar controversies, including issues of incorrect point calculations and questions regarding their legitimacy.

2. Monopoly of Large Holders
   Existing point systems often favor users with more capital, resulting in large holders dominating point distribution. For example, in EigenLayer’s airdrop, a single large holder accounted for 4.26% of the total airdrop amount. This scenario does not foster an inclusive and fair environment for all users.
   Furthermore, improper point system designs can lead to users engaging solely for the airdrop, lacking long-term engagement. A case like LayerZero, where trading volume plummeted by 95% after its airdrop, highlights this problem.

Solutions: Designing a Reasonable Points System

1. Transparency and On-chain Recording
   Moving point system data on-chain and introducing third-party oversight can increase transparency and credibility. This helps reduce manipulation and ensures a more reliable point distribution process.

2. Reasonable Reward Mechanisms
   Implementing differentiated weightings to balance rewards between large holders and regular users can help prevent monopolization. It’s essential to focus on encouraging actual product use rather than just the accumulation of points.

3. Diversified Use Cases for Points
   Expanding the use cases of points, such as applying them for product discounts, platform governance participation, and other meaningful actions, can enhance user engagement and loyalty.

4. Preventing Speculative Behavior
   Designing clear point use scenarios and establishing dynamic adjustment mechanisms that adapt to market changes can prevent speculative behaviors and encourage long-term engagement.

By adopting these measures, projects can establish a fairer, more transparent, and sustainable points ecosystem. This approach not only attracts user participation but also promotes the long-term healthy development of the project.

On-chain Points and Their Characteristics

On-chain points are a reward system based on blockchain technology, utilizing decentralized, transparent, and immutable methods for managing and distributing points. This system is commonly used in loyalty programs, user rewards, and community participation incentives. On-chain points have three main characteristics:

1. Transparency, Credibility, and Immutability
   The biggest advantage of on-chain points is their transparency and credibility. All distribution and usage records of points are stored on the blockchain, allowing any participant to review these transaction records. This ensures that the system operates with full transparency. This addresses the issues of rule opacity and data manipulation commonly found in traditional off-chain point systems, especially in Web2 platforms where metrics may be manually manipulated. The immutability of on-chain points further guarantees the fairness and reliability of the distribution process.

2. Cross-platform Interoperability
   Thanks to the openness and standardization of blockchain technology, on-chain points can achieve cross-platform interoperability. Users can transfer or use points across different platforms and interact with various decentralized applications (Dapps), breaking the limitation of traditional point systems confined to a single platform.

3. User Incentives and Loyalty Programs
   Similar to traditional point systems, on-chain points primarily serve to incentivize user participation. In decentralized communities, active users earn more points, which can be redeemed for rewards, used to participate in specific activities, enjoy platform privileges, or even claim future token distributions. This effectively enhances user engagement and loyalty.

   Comparison of On-chain Points and Off-chain Points

There are several key differences in design between on-chain points and off-chain points:

1. Supply Volume
   The supply of on-chain points can be freely determined by the issuer, who can set a fixed total supply or allow for inflation. In contrast, traditional off-chain point systems typically do not have a supply cap.

2. Control and Variability
   Although on-chain points operate on a blockchain, the control remains in the hands of the issuer. The issuer can define the rules, use cases, and adjust the system as needed. This flexibility allows the point system to adapt to market changes and user demands.

3. P2P Transactions
   On-chain points can be designed to allow peer-to-peer (P2P) transactions, enabling users to exchange points without an intermediary directly. However, whether P2P transactions are allowed depends on the project’s need for liquidity within the point system.

Trends and Potential Applications of On-chain Points

On-chain points are particularly suited for scenarios that require high transparency and credibility. For example, the LXP token system by Linea is a great example of using on-chain points to recognize the community’s contributions to the ecosystem. The transparency and traceability of on-chain points significantly reduce the potential for human manipulation. At the same time, the composability of smart contracts enhances the metrics and reward distribution efficiency within the ecosystem.

According to venture capital firm Archetype, there are two potential future applications for on-chain points:

1. On-chain Identity Verification

On-chain points can serve as a quantitative proof of identity globally, adding a new dimension to a user’s on-chain identity. This could be integrated into various protocols and become a powerful marketing tool for identifying cross-product users. On-chain points can help create a more comprehensive profile for users across multiple platforms or services.

2. Protection Against Sybil Attacks

On-chain points can also be used as a means to verify account authenticity, helping to mitigate the issue of Sybil attacks (where one individual creates multiple fake identities to manipulate the system). This helps increase the security and fairness of the ecosystem, addressing common challenges such as multi-accounting and inflated participation metrics in blockchain networks.

PointFi Incentive Mechanism and Operation Model

Classification of Point Projects

Projects may issue points for various reasons, including gamified protocols, governance voting, and preventing airdrop abuse. These points are often used for token allocation and airdrops following the Token Generation Event (TGE). Research by Three Sigma analyzed 75 airdrop projects that used point systems, revealing the characteristics and development trends of different types of protocol point schemes.

Three Sigma has developed a simple classification standard based on user perspectives and reward needs to better understand point systems. The classification primarily considers two variables: capital requirements and user effort.

Capital Requirements - The capital requirements are divided into two types: low capital and high capital.

• Low Capital: Typically has a points cap, where all users have a maximum number of points they can earn.
• High Capital: There is no points cap, meaning the more capital invested, the more points can be earned. This is common in protocols that reward gas fees or non-leveraged trading volumes.

User Effort - User effort is divided into low input and high effort categories:

• Low Effort: Rewards are given for activities that require less effort, such as simply staking capital to earn points.
• High Effort: Rewards vary based on the depth and breadth of user participation, considering factors such as the number of activities, bonuses during specific periods, social engagement, and continuous participation.

Note: The loyalty program can be categorized using two key criteria: 1.Daily/weekly points cap. 2. Number of activities provided (on-chain and off-chain). It’s important to note that various types of protocols will still have differences in terms of effort levels and capital requirements within different clusters.

Points Incentive Mechanism

Web3 loyalty programs have integrated various complex mechanisms, often combining them for greater effect. The most effective point systems usually consist of three core elements: behavioral, basic, and enhancement rewards. Additionally, some innovative programs are beginning to explore the possibility of extra utility rewards.

Behavioral Rewards

Behavioral rewards outline users’ actions to earn points, such as making deposits on Layer 2 (L2) or trading on new automated market makers (AMMs). This includes:

• Holding Unlocked Assets: Assets that users can freely access (e.g., LRT, Pendle YT, Ethena sUSDe collateralized deposits on Morpho).
• Holding Locked Assets: Assets that require users to wait for a period before they can withdraw them (e.g., locked Ethena USDe, native staking on Eigenlayer, Karak, and Symbiotic).
• Providing Liquidity: Similar to unlocked assets but with the risk of passive liquidation of deposited assets (e.g., Thruster LP positions collateralized with Hyperlock).
• Social Participation: Activities like liking, sharing, commenting, and following.

Basic Rewards

Basic rewards are the core of loyalty programs, including release schedules, timelines, and potential airdrop sizes. Most projects set up multiple 3-6 month reward seasons, each with its own unique terms. The points release schedule determines the frequency and scale at which holders earn points, typically divided into two types of rewards: one-time and ongoing.

One-Time Rewards: These are single-point distributions for specific actions, often used to incentivize initial participation and marketing activities. Examples include Blur rewarding quick listing of NFTs, Lyra rewarding social activity participation, and Napier rewarding social engagement and referrals.

In contrast, variable releases (such as those used by Eigenlayer, LRT, and Ethena) have total supplies that change based on TVL (Total Value Locked). While this might dilute early participants, it is more flexible and easier to manage.

The duration of point distribution is also a key factor. Most projects set a fixed period (e.g., 6 months), while some provide a range (e.g., 3–6 months) to maintain flexibility. Some projects also set conditional distribution mechanisms to encourage user participation, such as ending the distribution early once specific milestones are achieved. For example, Ethena’s first season ended in just seven weeks after reaching $1 billion in TVL.

Enhanced Rewards

Enhanced rewards are an important tool for project teams to incentivize specific user behaviors by offering additional points or shares to encourage participation. These reward mechanisms are diverse, each with unique application scenarios and effects.

For instance, projects like Blur and Merkl have adopted targeted reward strategies to improve service quality. Blur offers additional rewards to liquidity providers (LPs) whose bids are close to the NFT floor price, while Merkl incentivizes more competitive LPs on Uniswap v3. These mechanisms improve overall service quality and indirectly enhance the trading experience.

User referral rewards are another common strategy, such as the referral code system used by Ethena and Blackbird. While this method helps to expand the user base, it also faces potential abuse risks, such as self-referrals leading to “sybil attacks.” Some projects, like Blur and Blast, go further by implementing tiered referral rewards, allowing users to benefit not only from direct referrals but also from indirect ones.

Basic rewards and market-launch boosting mechanisms are designed to cultivate user habits and stimulate early growth. Aevo’s points accumulation mechanism for traders is a great example. As users increase their activity, the speed at which they earn rewards also accelerates. Similarly, LRT projects like EtherFi offer extra rewards to early participants when launching new markets, helping to rapidly build a liquidity foundation.

Some innovative reward mechanisms, such as loyalty rewards, random rewards, and leaderboard rewards, aim to increase user engagement through fun and competition. Blur successfully gained market share from OpenSea through loyalty rewards, while its “care package” system and Aevo’s random trading volume booster mechanism created more incentive for user participation. Leaderboard rewards, although potentially concentrating rewards, can effectively boost overall engagement.

Additionally, some projects have explored longer-term incentive methods. For example, native token locking rewards offered by Ethena and Safe, as well as reward mechanisms based on TVL growth used by 3Jane and Overload, aim to foster long-term user loyalty, which may also influence token market dynamics. Emerging group reward concepts, like AnimeChain’s “Squads,” allow users to create their own teams to increase individual credit earning rates and, through collective effort, gain access to rarer NFTs. This method attempts to leverage social pressure to boost participation.

Finally, lock-up reward mechanisms represent a forward-looking incentive for future user behavior. Projects like EtherFi and Hourglass encourage users to lock assets for a longer period by offering additional rewards. This helps stabilize the project’s financial foundation and cultivates a sense of long-term user involvement.

Additional Utility Rewards and Reward Design Combinations

Point programs are not solely dependent on the anticipation of future airdrops. Many projects are exploring ways to provide additional direct utility to point holders. For example, Rainbow Wallet offers ETH yield sharing to point holders, while other projects are considering benefits such as product fee discounts, event access, and more. This trend will likely continue evolving, with more teams drawing inspiration from Web2 mechanisms to design innovative reward structures for point holders.

The design of point programs is flexible and can combine various reward mechanisms according to project goals (such as user acquisition, product improvement, marketing, etc.). Some innovative examples include Ethena distributing points to USDe holders and increasing sUSDe yields, Napier incentivizing social participation and cross-project collaboration, and Blur’s multi-phase airdrop strategy.

The Blur case is particularly noteworthy. Through a carefully designed multi-round airdrop, it established a strong supply-demand relationship. Using the random “care package” reward mechanism, it attracted active traders by rewarding private testers, then rewarded loyal users on a larger scale, and stimulated competitive bidding. As a result, Blur quickly secured a significant position in the NFT market.

After designing a point program, project teams must also focus on implementation details, including point calculation, data management, and user interface design. Many projects opt to develop these in-house, while some seek external developers and infrastructure providers for assistance. When preparing for a Token Generation Event (TGE) or the first airdrop, teams must also consider various distribution methods, such as fixed vs. dynamic, linear vs. nonlinear, vesting, lockups, and anti-sybil measures, while being mindful of potential security risks.

Market Structure of PointFi and Mainstream Projects

According to the quadrant chart from the previous section on point programs, Three Sigma classifies six major color clusters, each representing different sectors with varying capital requirements and user effort. These groups are summarized as follows:

• Pink Group: Point programs with high capital requirements. This includes projects such as Blur, Blast, Tensor, and others.
• Blue Group: Staking and re-staking protocols, including projects like EigenLayer, Renzo, and Ether.fi.
• Red Group: Low capital, high-effort protocols, such as Ruby, Bitget, Scroll, and others.
• Yellow Group: Capital-oriented point programs, including projects like Ethena, Jito, and others.
• Purple Group: Point programs for bridge protocols, such as Owlto, KiloEx, and others.
• Green Group: Low-barrier participation models, including projects like Grass, Supra, and others.

Below are specific explanations for each color group:

Source: threesigma.xyz

1. Pink Group: Point Programs with High Capital Requirements

This cluster includes protocols that require the highest effort and capital to accumulate points. It mainly covers NFT markets, social applications, and Layer 2 (L2) DEXs. These protocols typically incorporate gamification elements and innovative reward structures to incentivize users to engage in high trading volumes and sustained participation.

Projects in this category include BLUR, Tensor, Friend.Tech, Fantasy.Top, Shuffle, Insrt Protocol, Ambient Finance, Thruster Fi.

Degen Protocols: NFTFi, SocialFi, and GambleFi

Degen protocols are known for their high-risk/high-reward structures and are mainly divided into three categories: NFTFi, SocialFi, and GambleFi. As a pioneer, NFTFi, although less accessible than later entrants, successfully increased user engagement and platform asset allocation through multi-quarter plans. Protocols like Blur and Tensor have introduced gamified point programs, rewarding users based on trading volume and liquidity provision, with more organized token distributions achieved through quarterly cycles.

SocialFi platforms combine asset trading with social interaction, typically requiring less user capital and focusing more on rewarding social activities. GambleFi protocols offer point-earning opportunities through simple betting mechanisms. While these have lower capital requirements, they demand high levels of user participation.

Decentralized Exchanges (Spot-DEX)

DEXs built on Layer 2 (L2) solutions generally have stricter capital requirements. Rewards on these platforms are often based on trading frequency, volume, and fees paid. Most DEXs do not have point limits, which can lead to large capital users diluting the rewards for smaller traders. Different DEXs may focus on rewarding liquidity providers, traders, or both. For example, Jumper Exchange primarily rewards based on trading volume and frequency.

Common Characteristics and Challenges

These protocols generally emphasize rewarding high-capital participation and use filtering mechanisms to prevent wash trading. However, this strategy may overly favor large capital users, reducing the participation interest of smaller users. A future challenge will be how to attract high-capital users while also creating opportunities for small-cap users to participate, thus maintaining the balance and sustainability of the ecosystem.

2. Blue Group: Staking and Re-Staking Protocols

The Blue Group primarily consists of staking-related protocols, which, although requiring higher capital investment, are relatively simple to operate. We can identify three main types in this category: staking/LST (liquid staking tokens), re-staking/LRT (liquid re-staking tokens), and partial liquidity provision protocols.

Projects in this category include Milkyway, Jito, Aspida, Eigenlayer, Karak, Symbiotic, EtherFi, and Hyperliquid.

Staking/LST Protocol Features

Staking protocols like Milkyway, Jito, Aspida, and Stakestone primarily generate returns through a simple deposit mechanism. Most protocols tend not to set point limits to attract large-cap users, whereas protocols like Stakestone implement daily limits to promote fairer distribution. While this approach may restrict trading volume and capital inflows, it helps prevent imbalance in point distribution and encourages sustained participation rather than large deposits just before snapshots.

LST point programs typically follow an exponential distribution, where, without limits, the shares of early participants may be diluted. Each protocol differs in its distribution strategy, cap settings, and reward timelines, striving to balance user demand with fair distribution.

Re-Staking/LRT Protocol Innovations

The re-staking mechanism, introduced by Eigenlayer and adopted by competitors like Karak, offers users more reward opportunities than traditional LST. Users can earn points from both the LRT program and the underlying re-staking layer, which is particularly beneficial for early large stakers. These protocols have simple and direct strategies: more staked assets and longer duration equal more points.

With the rise of liquidity re-staking, many protocols have created their own point systems to incentivize continued participation. For example, Eigenlayer allows users to earn both its points and LRT points. Most protocols also use seasonal mining models, such as Eigenlayer and EtherFi, to maintain high levels of participation. LRT programs typically employ exponential distributions, calculating points in terms of ETH*hours, where early participants benefit from cumulative effects and additional rewards.

Common Features and Analysis

Protocols in the Blue Group are particularly suitable for high-cap users (commonly known as “whales”) because they are simple to operate, and rewards are directly related to the amount deposited. This is evident from the case of Justin Sun, who made a large deposit in EtherFi before a snapshot and received substantial returns. These protocols excel at leveraging their mechanisms to create multiple reward opportunities for users, such as using LST and LRT in other DeFi activities, further enhancing reward potential.

3. Red Group: Low-Capital, High-Effort Protocols

The Red Group includes protocols that require lower capital but high user engagement, such as Layer 2 (L2) networks, perpetual contract decentralized exchanges (Perp-DEXs), and wallets. These platforms enable users with small capital to compete with high-cap individuals by offering leverage or rewarding off-chain activities.

Projects in this category include Wasabi Protocol, Avantis, Drift Protocol, Rainbow Wallet, Rabby Wallet, Bitget Wallet, Band ackpack Wallet.

Layer 2 Networks (L2)

L2 networks attract users through diverse activities, including asset bridging, ecosystem participation, and social promotion. Different L2 networks use various distribution strategies, such as Ruby’s social media promotion, Linea’s multi-quarter programs, and Blast’s dual-point system. These programs not only encourage network activity but also provide participation opportunities for users with limited funds. It’s noteworthy that L2 networks are increasingly rewarding “off-chain” activities, such as developer contributions and community engagement.

Perpetual Contract Decentralized Exchanges (Perp-DEXs)

These exchanges lower capital requirements by offering leverage, thus attracting smaller traders. Their reward mechanisms encourage active trading, liquidity provision, and user participation. Common strategies include trading competitions and profit-and-loss-based rankings. Many platforms implement point caps or offer higher rewards for high-risk traders to prevent large users from monopolizing rewards. These measures foster participation from a wider range of users. In terms of distribution methods, both decay and exponential distribution are common, with the former emphasizing early participation and the latter encouraging latecomers and risk-taking.

Wallets

Wallet providers have recently launched unique point systems that attract users through diversified reward mechanisms. These programs not only include basic wallet functions but also cover added-value services like staking and swapping. Most wallets adopt decay/logarithmic distribution, but there are exceptions, such as Bitget’s linear distribution and Backpack’s exponential rewards. These incentives not only improve user experience but also promote the development of the broader crypto ecosystem.

Common Characteristics and Analysis

In the Red Group, L2 networks and wallets focus on diversification and repetitive activities, while perpetual contract DEXs lower barriers through leverage. L2 networks and wallets’ programs often include both on-chain and off-chain tasks, and sometimes create multi-layer point systems (such as Blast Gold) to further stimulate ecosystem development. This strategy not only enhances user participation but also creates conditions for healthy competition between protocols, driving innovation and growth across the industry.

4. Yellow Group: Capital-Oriented Points Programs

The Yellow Group primarily includes protocols requiring users to deposit funds, typically divided into money markets and “deposit and earn” programs. The common feature of these protocols is their emphasis on capital investment, although the required level of user participation may vary.

Projects in this category include INIT Capital, Marginfi, Kamino, Velar, Ekubo, Eand thena.

Money Markets

Money market protocols focus on borrowing and lending activities, playing a crucial role in maintaining liquidity. These protocols stimulate user participation by rewarding borrowing and liquidity provision. Typically, borrowing receives higher rewards because it creates demand for liquidity. Users who hold positions for the long term may also receive additional reward multipliers, contributing to market stability. The reward distribution methods vary, ranging from linear to exponential, reflecting different user incentive strategies.

Deposit and Earn

This type of program mainly targets liquidity providers (LPs) and simple deposits. While the effort required is lower, these programs generally demand higher capital investment. They usually do not set daily point caps, allowing users to accumulate rewards indefinitely based on the liquidity provided. Rewards are typically proportional to the capital deposited, encouraging larger-scale participation.

Common Characteristics and Analysis

Compared to other groups, the points acquisition in the Yellow Group is relatively simple, but the capital requirements are higher. These protocols typically do not offer reusable assets as rewards, limiting users’ ability to earn additional points in other protocols. Therefore, although the entry barrier is lower, earning substantial points may require more capital investment.

5. Purple Group: Points Programs for Bridges

Bridges dominate the Purple Group, focusing on rewarding users’ repeated activities rather than capital investment. These protocols attract users by rewarding transaction frequency, fees paid, and transaction volume. For example, Owlto offers additional rewards for high-frequency traders, encouraging more trading activity.

Compared to decentralized exchanges (DEXs), bridges carry lower capital risk, attracting more conservative users. Users can take advantage of low-cost cross-chain bridging, with the main cost being the platform fee. However, the simplicity of the tasks has led to intensified competition and the increased use of bots.

When choosing a bridge, users should consider its reward mechanism: rewarding based on transaction frequency is more beneficial for small-capital users (such as Owlto and Orbiter), while rewarding based on fees and transaction volume is better suited for large-capital users (such as Xlink and Debridge). Most bridges adopt a linear distribution model, rewarding both early and late participants equally.

Through these strategies, bridge providers aim to build a loyal user base, increase engagement, and create a vibrant ecosystem. However, users should remain cautious of Sybil attack risks, as these simple tasks can be easily exploited.

6. Green Group: Low-Barrier Participation Models

The Green Group represents a unique points reward method that does not require users to invest significant capital or effort. These protocols primarily reward users through social activities, simple tasks, or resource sharing (such as network bandwidth and computing power). This approach is considered a “traditional” method for airdrop farming and is commonly used during the initial stages of a protocol’s development. Characteristics of this strategy include:

• Focus on repetitive tasks and social activities to maintain user engagement.
• Typically employ linear point distribution, sometimes combined with decay functions to reward long-term loyal users.
• Able to sustain user interest even when the protocol’s main functions are not fully developed.
• User-friendly, with low participation barriers, requiring time investment rather than capital.

This low-barrier participation model has proven to be highly effective in maintaining high user engagement during the early stages of protocol development while paving the way for more complex features later on. It offers users an opportunity to participate in airdrop farming without significant capital investment, making point acquisition more accessible.

Projects such as Supra Oracles, GetGrass, and Redbelly Network adopt this strategy.

Current Challenges and Future Potential

Challenges and Opportunities in the Points Track

Despite the popularity of the PointFi model in the Web3 ecosystem, it still faces some significant challenges:

• Centralization Issues: The calculation, storage, and distribution of points lack transparency, which may undermine user trust.
  • Projects need to enhance transparency through clear communication and timely disclosure.
• Point Fatigue: Users must invest considerable time and effort to assess the value of points across different projects.
  • This could lead to decreased engagement, and projects must innovate to stand out in the competitive space.
• Masking Product-Market Fit (PMF): Over-reliance on point incentives may obscure real user needs and the value of the product.
  • Projects are advised to validate their PMF before introducing point systems to ensure that token rewards drive organic growth.

However, the future of the Points track still holds substantial potential:

• Blockchain Integration: Moving point systems onto the blockchain can improve transparency, as seen with 3Jane’s AMPLOL and Frax’s FXLT points.
• Infrastructure Development: Point software providers like Stack build infrastructure to manage on-chain point programs.
• Secondary Market Development: Although liquidity is currently limited, the secondary market could become an important platform for price discovery, exit strategies, and active point economies as it matures.
• Innovative Reward Mechanisms: With advancements in Web3 technology, we may see more innovative PointFi strategies that further enhance the user experience.

By overcoming these challenges and seizing these opportunities, the PointFi model has the potential to become a key tool in driving blockchain project growth and reshaping the participation models of the digital economy.

Conclusion

In summary, the PointFi model represents a significant innovation in Web3 user participation. With its diverse reward mechanisms, ranging from high capital involvement to low-barrier strategies, it caters to the needs of different user groups. Despite facing challenges like centralization and point fatigue, the potential for future development of PointFi remains enormous. With the advancement of blockchain technology and infrastructure improvement, PointFi is expected to optimize user experience further, enhance market efficiency, and reshape participation models in the digital economy. As a bridge connecting users to the blockchain world, PointFi drives project growth and lays the foundation for the healthy development of the entire Web3 ecosystem, showcasing the immense potential of blockchain technology in user incentives and community building.