Web3 oligarchy is exploiting users: From Tokenomics to Pointomics

Foreword

We have just experienced the fastest crypto cycle in history. It only took less than two quarters to go from a bear market to an extreme bull market. The price of BTC quickly rose from less than 30,000 US dollars to an all-time high. The core driver of this process is naturally This comes from the passage of a large number of BTC ETFs under the macroeconomic background of the Fed tightening cycle that is coming to an end, which has injected a large amount of new funds into the market. In the process of this great speculation, the Web3 world has also quietly changed. On the one hand, new narratives are emerging one after another, from Ordinal to BTC Layer2 to Restaking, creating one wealth myth after another. On the other hand, the Web3 project is the most typical The genes of Web3 are also quietly changing. This is also the topic we want to explore in depth today, that is, the mysterious flywheel that the Web3 project is proud of, which seems to be undergoing a transformation from Tokenomics to Pointomics. From my perspective, this doesn’t seem so wonderful!

First, let me explain this topic. The so-called Tokenomics refers to the combination of “Token” and “Economics”, that is, an economic model is built around the issuance of a token on the chain as the core subject matter. Usually this economy The core purposes of model establishment include the following three:

1. Promote the growth of the project by giving certain token incentives to user behaviors that are beneficial to the development of the project;

2. Solve the financing needs of the project party through the design of Token issuance ratio;

3. Grant certain governance rights to Token and achieve a relatively decentralized co-governance management mechanism for users and projects.

The success or failure of most Web3 projects usually depends on whether the first core purpose can be achieved. A good Tokenomics design can usually achieve a long-term, relatively stable effect on the project’s core behavior incentive income, and for the project party The cost of maintaining this effect is lower. For the best among them, we usually think that it has a flywheel with positive feedback capability, which absorbs the energy of development through continuous operation and achieves a cold start of the project.

Pointomics is a word named by the author. Its definition is an economic model with Loyalty Point as the core incentive subject matter. It emphasizes the incentives for users’ key behaviors to promote the growth of the protocol. Its design paradigm is usually the same as the user incentive part in Tokenomics. The design is similar, but the subject matter around the incentive mechanism is changed from a Token on the chain to a Point number (commonly called Loyalty Point) that exists in the project party’s centralized server.

In recent times, it is not difficult to find that most of the recent star Web3 projects have chosen to use Pointomics instead of Tokenomics during the project launch process, and these projects usually have good data performance. We can easily select some representative project data to illustrate this trend, such as our most popular Ethereum Layer2 project Blast and EigenLayer and EtherFi in the Restaking track. They all chose Loyalty Point as their core flywheel, and the total amount and growth rate of TVL of these projects far exceeded other projects that chose Tokenomics to launch.

So can we say that the new flywheel of Web3 has changed from Tokenomics to Pointomics? I think it’s too early to make this conclusion.

Pointomics originated from the last resort choice of project parties in the bear market

First of all, I need to point out that I think that using centralized Loyalty Point instead of Token as the core incentive system, also known as Pointomics, is not a necessary and sufficient condition for the success of Web3 projects. It is a choice that the project parties have to make in the bear market.

Let’s take a closer look at the difference between Pointomics and Tokenomics. Although the goals they want to achieve are the same, they are actually very different. The difference is:

1.** Fuzzy rights and interests: **Unlike Tokenomics, project parties with Loyalty Point as the core flywheel usually do not give precise value commitments, but only choose some vague soft commitments, such as There are expected airdrops, which may correspond to certain boosting effects, etc., and this is unusual in projects that choose Tokenomics as the core flywheel, because the subject matter of the reward has been publicly circulated at the beginning, and when the value is priced by the market through transactions Finally, its speculative returns have been quantified, which has reference value for user participation.

**2.**Opaque incentive mechanism: Quite a few project parties do not even give a precise description of the incentive mechanism of Loyalty Point. Since Loyalty Point exists in a centralized server, its incentive mechanism is a black box for users. Users can only see a number but cannot know the reason and calculation process for obtaining the number, so it is difficult to explore whether it is fair and accurate. In Tokenomics, the incentive mechanism is implemented through smart contracts, which ensures that users have the ability to self-check in any case and ensures the openness and transparency of the entire reward process.

**3.****Revenues are not negotiable: **When users obtain Loyalty Points, they are usually not tradable. In order to cash in the earnings, they can only wait until the project side proactively honors its soft promises. However, this process is usually long and lengthy. Full of variables. In Tokenomics, user rewards are issued in the form of Tokens, which gives users the ability to vote with their feet and allows users to cash in their earnings directly through transactions. This, in turn, creates certain requirements for the project side to work hard to optimize the project to retain users.

This doesn’t look good, so why is this happening? I think it stems from the last resort choice of project parties in order to reduce project operating costs during the bear market. Looking back a year ago, Blur and Friend.tech were phenomenal projects at the time. Blur was an NFT exchange, and Friend.tech was A decentralized social media platform. Different from most projects at the time, both chose to use centralized points as targets to encourage users to use their products, and achieved good results at the time. I think they basically shaped the current basic paradigm of Pointomics.

The reason for its success is attributed to the success of the project operation and design. On the other hand, I think it is mainly because the crypto market was still at the end of the bear market at that time. The market liquidity and users’ willingness to buy were at a relatively low stage. If you rashly choose to distribute tokens as incentives, you will face greater market pressure. The cost of maintaining the rate of return of project incentives is relatively large. Choosing Pointomics effectively reduces this cost, because in the cold start stage, the project party has no pressure to manage the market value, and the income needs to be cashed after the successful launch. This reduces the operating costs of the project party in the early stage of the project to a certain extent. However, this is at the expense of user benefits and to a certain extent, the willingness of users to participate. When the market fast-forwarded to a new round of bull market cycle, users’ willingness to participate in the project and purchase tokens has been restored. At this time, due to the existence of market inertia, users have a certain tolerance for Pointomics, which also makes its recent performance appear good on the surface. However, it seems a bit rough to blindly adopt Pointomics as a necessary and sufficient condition for the success of the Web3 project. When the market is full of a large number of unrealized hidden centralized points, tired users will bite back the crypto world.

The intrinsic value of Loyalty Point is the credit of the project party

Next we need to discuss what is the key to a successful Pointomics design, or what is the intrinsic value of Loyalty Point. I think the answer is the credit of the project party. Based on the above sharing, we know that projects that choose Pointomics usually do not give a clear right to their Loyalty Point, but only use some vague descriptions to perfunctory the matter. This can certainly bring more initiative to the project side, and the final equity exchange method can be dynamically adjusted depending on the operating status of the project, thereby maintaining a more appropriate relationship between cost and effect.

In this case, the reason why users still maintain their enthusiasm for the illusory Loyalty Point lies in their trust that the project party will allocate appropriate rewards to Point in the future, and the strength of trust determines whether the project’s Pointomics can be successfully stimulated. Increase users’ enthusiasm for participation. However, this is usually strongly related to the background of the project. A team that has obtained luxurious VC investment, strong support from a certain ecosystem or has a strong background will have a stronger sense of trust, and for those degen, community-driven projects This is usually difficult to have at the beginning of a project, which explains that projects that choose Pointomics and achieve success are usually some large Web3 oligarchs. You can easily find such examples, especially in the Restaking track. in this way.

Therefore, I believe that compared to using Token directly as the incentive subject matter, the trust cost of choosing Pointomics is higher and more suitable for monopoly projects. However, this also provides more convenient tools and conditions for these oligarchs to exploit users by taking advantage of their scale;

Web3 oligarchy exploits users through Loyalty Point in exchange for initiative, but abandons network effects

So how exactly does this exploitation of Web3 users manifest itself? There are three main aspects:

1.** Time cost: ** Since the Web3 oligarchy will actually reward cunning delays into the unknown future, and for most Web3 projects, TVL is an important metric, so there is an incentive for financial participation is a common method. For users, they need to participate in the project in some way to earn potential benefits, which also increases the user’s time cost, because before the oligarchs actually publicly promise that the benefits will be realized, they will not be able to earn potential benefits. There is no expectation for him to continue, and the increasing time cost makes it more difficult for users to make a decision to quit.

**2.**Opportunity cost: We know the importance of liquidity in the coming stage of the bull market, because the market has never lacked hot spots, and it is relatively easy to capture Alpha returns. However, the funds locked in order to obtain potential benefits will cause users to face a large opportunity cost. Just imagine, you could have used your 10 ETH to participate in project A and get 15% APY in real time, but you chose to participate in project B. Earn Points and hope for a potential return, only to find out when the return is announced in the future that the return is only 1%. Not long ago, such a tragedy was happening in the EtherFi community, another star project.

3. High risk and low potential return: Projects are often fragile at the beginning of their launch, especially in the Web3 field. We have seen too many star projects that have achieved high TVL in a short period of time, but due to some smart contract vulnerabilities or operational errors, they eventually lost funds, and these errors were ultimately paid for by early users. Therefore, these users usually face higher risks than participating in a mature project. However, due to the initiative that Pointomics brings to the project party, it can easily abandon its early participating users after the project is successfully launched and runs smoothly, because they have lost value and become a burden. Assuming that the project is not successfully launched, in order to save costs, the project will also choose to keep the actual returns as low as possible. Therefore, this process is a dangerous game with high risks and low potential returns for users.

But is this kind of exploitation perfect for the project? The answer is also no. Because the project ignores network effects in the process. We know that the core values of the Web3 world are decentralization, co-governance, and openness. Using the blockchain to switch the originally closed database to an open and transparent open platform, and using a fair incentive mechanism (usually Token) to fully leverage the power of the community to build together, many miracles have been created, and the key to these lies in the network effect. However, choosing a centralized Loyalty Point will close the entire incentive system, which has to be said to be a step backwards and a neglect of network effects. I can conclude that if projects using Pointomics cannot successfully complete the switch to Tokenomics, In other words, if this process cannot satisfy users, they will not be able to have a vibrant community, let alone a hopeful ecosystem. This has to be said to be a greater loss.

Giving liquidity to the Loyalty Point of Web3 projects is critical and unstoppable

So haven’t things changed? I think the crypto community has noticed this phenomenon and taken action. The reason is that the centralized nature of Loyalty Point makes it lose liquidity and transparency, which makes users passive. So it is very interesting to give liquidity to Loyalty Point in some way. And different from the Loyalty Point Plan of most Web2 projects, since most of the key user behaviors of Web3 projects are on-chain behaviors, these data are open and transparent, so it is also possible to put the off-chain Point on-chain through some kind of on-chain agent, which is difficult to achieve in the Web2 world.

We have seen some interesting projects trying to solve this problem, such as WhaleMarkets, Michi Protocol and Depoint SubDAO. Among them, in WhaleMarkets’ Point Market we have seen a lot of transactions around Point income accounts, while Michi Protocol has obtained The rewards of the ETH Denver Hackathon show that the pain points are indeed established and have relatively large market potential. To sum up, these projects are generally divided into two core ideas:

1. By creating an on-chain proxy or Talk about an on-chain wallet, and convert this on-chain agent to NFT, thereby realizing on-chain encapsulation of all income rights of this account. By purchasing the ownership of an on-chain agent, the user can obtain all future rights and interests of the account, and the seller You can also discount your future earnings in advance to lock in profits, thereby reducing your time cost and opportunity cost. Such as WhaleMarkets and Michi Protocol. However, this method has certain limitations. Since NFT is a carrier with poor liquidity, it cannot form an effective secondary market. Moreover, there are no very successful cases of financial innovation surrounding NFT, so the relative network effect potential is also limited. relatively low.

2. The same idea as the first one, but by directly tokenizing the Loyalty Points off the chain, issuing the corresponding on-chain ERC-20 Token to directly map the amount of the Loyalty Points, and through certain mechanism designs to make the value of the Token and the Loyalty The value binding of Point makes users obtain Token equivalent to obtaining the ability to cash out the corresponding Point’s future earnings. For example, Depoint SubDAO. Compared with the first idea, this method allows the secondary market to have better liquidity and has stronger potential for financial innovation. However, how to solve the value mapping relationship between Loyalty Point and Token is more difficult. is the key. Although the key user behaviors motivated by Pointomics in most Web3 projects are usually on-chain behaviors, it does not rule out that many off-chain operations, such as following X, etc., enter the community, which brings certain limitations to the coverage of value mapping. challenge.

To sum up, I think it’s time for Web3 Degens to pay attention to this exploitation. Through unremitting efforts, we have regained ownership of the network and avoided the ruthless monitoring and exploitation of Web2 oligarchs. We must not lose the foundation that Web3 is proud of.