Who would not need free cash?
Factors, the quasi-loyalty applications meant to incentive use of blockchain purposes by providing scrip that may in time be redeemed for one thing worthwhile, faucet into one thing primal in our reptilian brains: our hardcoded want for playing.
0xRooter is the founding father of Solend and Suilend protocols.
The dopaminergic system helped our ancestors take dangers that introduced us to in the present day. With out high-risk-high-reward actions, we would not be on this golden period of expertise (which we use to flip meme cash at 1,000 TPS).
Tales of Common Joes incomes life-changing cash immediate an inner monologue of “what if?” When “everyone seems to be getting hilariously wealthy and you are not,” we FOMO.
Airdrops have been rewarding for a lot of. However tasks have caught onto the growth-hacking potential and up to date development of “factors,” and the method is already being abused. Builders know what they’re doing, we all know what they’re doing, they know we all know what they’re doing. Factors in the present day are predatory, lazy and are actually simply playing.
The historical past of incentivizing crypto adoption
To grasp factors, it is necessary to grasp how they got here to be.
Liquidity mining was pioneered by Compound, a transfer which kicked off the “DeFi Summer time” of 2020. Lending and borrowing on Compound was incentivized through COMP tokens. Quickly, a dozen tasks provided comparable incentives with their very own twist. One in all them, Sushiswap, incentivized liquidity provisioning (LP) positions with its personal token, SUSHI, to “vampire assault” Uniswap, which hadn’t but launched its personal governance token. This pressured Uniswap to launch UNI, which it did with a retroactive airdrop for early customers. (Some joked it was the “stimulus for Ethereum” because it was greater than a COVID stimulus examine.)
The widespread attain of the UNI airdrop was an enormous catalyst for decentralized finance, attracting hordes of recent customers. This identical means of airdropping tokens has been copied by quite a few totally different protocols on quite a few totally different chains since — with various levels of differentiation.
Then got here Blur in 2022, the pioneer of factors. Customers might earn factors by buying and selling non-fungible tokens (NFTs) on its market. By preserving incomes standards opaque, farming may very well be resisted in favor of actual utilization. With the unbelievable success of Blur, it wasn’t lengthy earlier than each undertaking had a factors program.
A typical false impression is that factors in DeFi are an evolution of loyalty factors that airways, resorts and cafés supply. Simply because DeFi tasks and cafés each name them “factors” doesn’t suggest they’re the identical factor. They’ve main variations in historical past and utilization, making them separate taxonomies. One is a low-stakes loyalty program, the opposite deliberately preys on hype to pump metrics and farm charges.
Factors in the present day
The present factors meta is predatory. There isn’t any identified reward, no timeframe and modifications may be made arbitrarily. Rewards may very well be worthless or by no means be distributed (what some name “endlessly factors” as a result of they’re by no means redeemed for worthwhile tokens). Goalposts can constantly be moved again. All on the expense of customers who pay actual charges and alternative value.
Initiatives are working wild with false promoting, selling black containers in a world the place transparency needs to be paramount. They usually’re pushing issues past what the pioneers did. Blur launched their token inside 5 months, however there are tasks now which have been milking their customers for over a 12 months now.
How factors needs to be designed
The difficulty with factors will not be factors themselves, however how they’re getting used to prey on customers. Nevertheless, it is attainable to design a factors program that’s helpful to each the undertaking and customers.
The principle modifications that have to be made are disclosing rewards upfront, speaking a timeframe and committing.
Solend, the undertaking I based, did this with “Factors Season 1,” the place a minimal rewards pool (which might solely be elevated) was disclosed and a timeframe was communicated. The rewards pool began with 100,000 SLND tokens and was later elevated to incorporate 100,000 PYTH (the governance token for Pyth Community) and 10 Tensorians (the NFT assortment launched by Tensor, the main NFT market on Solana).
The trail ahead for factors requires a dedication to transparency and equity. By being upfront, tasks can ship the dream of clear, decentralized finance quite than constructing the techniques we took subject with within the first place. By prioritizing ethics, we are able to remodel factors from a speculative gamble into a great tool for engagement, retention and rewards. Correctly.