What is Points Farming?
Points farming in the crypto industry refers to users performing specific tasks on protocols to earn points. While these points don’t hold inherent value, they carry the potential for future rewards, often through token airdrops. This concept mirrors loyalty programs in the Web2 space, like grocery store points or airline miles, incentivizing user engagement and potentially fostering a sense of loyalty.
The Bait and Hook Approach
Points farming operates as a hybrid model, combining the allure of airdrops with the mechanics of yield farming. Airdrops involve distributing free tokens to users’ wallets, serving as a marketing tool to raise awareness. Yield farming, on the other hand, encourages users to lock up their cryptocurrency on a platform to earn interest.
Similar to airdrops, points farming entices users with the prospect of future token rewards. Like yield farming, it encourages active participation and interaction within the platform. This “bait and hook” strategy aims to attract and retain users, potentially boosting a protocol’s growth.
Points Farming Case Studies: Friend.tech and EigenLayer
The crypto space has witnessed the rise of several notable points farming programs. Two prominent examples, Friend.tech and EigenLayer, showcase both the potential and controversies surrounding this strategy.
Friend.tech: SocialFi Hype and Airdrop Disappointment
Friend.tech, a social decentralized application (dapp) on the Base blockchain, generated considerable buzz with its points farming program. Users could earn points through various activities, fueled by the anticipation of a future token airdrop. This strategy initially proved successful, attracting a large user base and driving significant trading volume.
However, the hype surrounding Friend.tech waned due to concerns about its long-term sustainability, revenue model, and privacy policies. The platform’s token airdrop also faced criticism for technical issues, limited token transferability, and a distribution strategy that many perceived as unfavorable.
EigenLayer: Restaking Rewards and Community Backlash
EigenLayer, a prominent restaking platform, attracted users with its points-based system, where points were awarded based on staked assets and duration. The program significantly contributed to the platform’s growth, but the subsequent airdrop sparked community backlash.
The controversy stemmed from restrictions on token transferability, a limited initial token distribution, and the exclusion of certain users and service providers. EigenLayer responded to the criticism by expanding its token distribution, but the situation highlighted the potential for discord between user expectations and airdrop implementations.
Pros and Cons of Points Farming
Points farming presents both advantages and disadvantages for users and protocols.
For Users:
Pros:
- Potential for earning lucrative rewards through token airdrops.
- Points-derivative platforms offer opportunities for early trading of points.
- Some programs may reward non-volume related metrics, giving smaller investors a chance to earn.
Cons:
- Lack of transparency regarding points earning criteria and conversion rates.
- No guarantee of points being converted into tokens or the value of those tokens.
- Potential for low ROI, especially if participating at a high anticipated FDV.
For Protocols:
Pros:
- Cost-effective user acquisition and marketing strategy.
- Potential for significant platform growth in terms of users, TVL, and revenue.
- Control over points usage, conversion rates, and airdrop timing.
Cons:
- Uncertainty about user retention post-airdrop.
- Risk of community backlash if airdrop execution doesn’t meet expectations.
The Future of Points Farming
Points farming, while still in its early stages, has become a notable trend in the crypto landscape. Its effectiveness hinges on a balance between incentivizing users and delivering on the implied promises of future value.
Protocols need to prioritize transparency, sustainable value creation, and community engagement to ensure the long-term success of their points programs.
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