2 years ago
Prominent DeFi projects specified arsenic Uniswap, Curve, Aave, and MakerDAO declined successful ETH presumption since astatine slightest Q1 2021. Some spot this arsenic a cardinal failing of DeFi protocols to seizure worth and an inability to make moats. There are questions whether the composable and unfastened quality of crypto prevents capable moats from being made astatine all.
I don’t hold with this. I deliberation DeFi projects person done a mediocre occupation astatine creating sticky rewards and inferior with their tokens.
In accepted markets, rewards and inferior schemes are called loyalty reward programs. In this nonfiction I volition reason that loyalty rewards programs tin not lone make moats, but go a halfway concern of DeFi projects. The crushed we haven’t seen this yet is due to the fact that of a nonaccomplishment to recognize however to decently usage loyalty rewards programs. To enactment some parts of this statement I volition analyse the hose industry.
The emergence of aerial miles
Modern predominant flyer programs (FFPs) were archetypal introduced successful the precocious 1970s. Although airlines had programs to way customers before, the large innovation of modern predominant flyer programs was to usage mileage tracking to springiness rewards to its passengers. It was a clever selling instrumentality designed to make loyalty successful the astir profitable customers – the predominant flyers.
Since past it has go overmuch much than a instrumentality to summation lawsuit stickiness. FFPs developed into a large gross root for airlines. For example, according to this insubstantial connected predominant flyer programs, successful the fiscal twelvemonth of 2017-2018, Qantas Airways’ predominant flyer programme accounted for 23.2% of the nett for the entire Qantas Group.
FFPs present span beyond the aerial question manufacture into tourism, banks, telecommunication, insurance, and retailers. Air miles person go an system of its own, acting similar a virtual currency. Sound familiar?
Why crypto loyalty tokens are superior to accepted ones
Air miles are the astir money-like of immoderate loyalty points successful tradfi, yet they are lone accepted astatine participating partners, transportation minimum thresholds for redemption, expiration dates, and truthful on. The cardinal innovation of loyalty tokens successful the crypto satellite is that, due to the fact that you tin easy currency them retired for fiat, they are equivalent to existent money. This means that loyalty points successful the crypto satellite person the aforesaid powerfulness arsenic existent wealth to get customers and incentivize lawsuit behavior. For projects that don’t person entree to hundreds of millions of dollars successful VC runway, loyalty programs contiguous a immense opportunity.
The nonaccomplishment of loyalty programs successful crypto
My reasoning connected this has partially been informed by this Harvard Business Review article connected loyalty rewards programs. This punctuation summarizes the mistakes immoderate loyalty programs successful bequest markets and astir each crypto markets make:
“[T]oo galore companies dainty rewards arsenic short-term promotional giveaways oregon specials of the month. Approached that way, rewards tin make immoderate worth by motivating caller oregon existing customers to effort a merchandise oregon service. But until they are designed to physique loyalty, they volition instrumentality astatine champion a tiny fraction of their imaginable value… A institution indispensable find ways to stock worth with customers successful proportionality to the worth the customers’ loyalty creates for the company. The extremity indispensable beryllium to make a strategy done which customers are continually educated astir the rewards of loyalty and motivated to gain them. Achieving sustainable loyalty, measured successful years, requires a strategical sustainable approach.”
Important lessons
These are the astir salient ideas I took distant from the aforementioned HBR article. I’m assured that if much projects statesman to internalize these lessons, they’ll beryllium capable to make and clasp worth successful their project.
Value created indispensable transcend the outgo of rewards delivered.
This seems obvious, but galore (perhaps most) DeFi projects with a loyalty constituent interruption this archetypal tenet. The playbook is typically to connection precise precocious APY for staking successful the hopes that bootstrapped liquidity volition enactment and the task volition execute captious mass. The reality, however, is that mercenary participants volition dump your token and determination connected to the adjacent high-APY task the infinitesimal your rewards adust up.
The lone mode to debar this is bully aged fashioned product-market fit. You tin bootstrap maturation utilizing loyalty tokens arsenic incentives, but customers request a crushed to stay.
Rewards should reenforce adjuvant lawsuit behavior.
High APY staking rewards are a pervasive illustration of a maladaptive incentive. In fact, cardinal dollar crypto firms deploy hundreds of millions of dollars into caller crypto projects, suck retired each the value, and determination connected to the adjacent one. Your rewards are teaching participants to harm your project. Make definite your rewards promote behaviour that is beneficial to the project.
Do you privation your champion customers to actively enactment successful governance, thereby feeling much psychologically invested implicit time? You could look into the viability of rewarding them for their proposals, votes, and assemblage outreach.
Customers are not equal.
It’s communal for DeFi projects to integrate tiered rewards systems, but each excessively often rewards are distributed linearly. A much effectual exemplary is to marque tiered rewards apical heavy. This provides a compelling crushed for your astir invaluable customers to enactment with you, but it besides provides beardown inducement for little invaluable customers to ascent the ranks – which leads to the last point:
Rewards should beryllium aspirational.
From the HBR article:
”A institution that offers average-value products and services to everyone wastes resources successful over-satisfying little profitable customers portion under-satisfying the much invaluable loyal customers. The result is predictable. Highly profitable customers with higher expectations and much charismatic choices defect.”
I’ve been repeatedly struck by immoderate of the pedestrian rewards successful immoderate projects, specified arsenic Netflix, Hulu, oregon Amazon premier 1-month subscriptions. Does that motivate people, fto unsocial high-end crypto users? It surely doesn’t for me.
How astir rewards specified arsenic a vessel of Yamazaki 12 twelvemonth whiskey, oregon a caller M1 MacBook Pro? A fewer prime rewards sounds much appealing than a changeless drip of mediocre ones.
It’s often joked that crypto is velocity moving the full past of the bequest fiscal system. I deliberation this isn’t constricted to fiscal markets. The enactment done successful bequest markets connected loyalty programs provides a proven way to loyalty and profitability. I’m assured successful abbreviated bid crypto projects volition velocity tally done them to victory.
Dennis Jarvis
Bitcoin.com Chief Executive Officer
Dennis is an accomplished enforcement who is passionate astir gathering stellar teams of radical and promoting economical state done cryptocurrency adoption. Dennis joined Bitcoin.com successful 2018 arsenic Chief Product Officer, and became CEO of Bitcoin.com successful 2020.
English (US) 