Who does not need free cash?
Factors, the quasi-loyalty applications supposed to incentivize using blockchain functions by providing scrips that may ultimately be exchanged for one thing useful, faucet into one thing primal in our reptilian brains: our hard-coded need for playing.
0xRooter is the founding father of the Solend and Suilend protocols.
The dopaminergic system helped our ancestors take dangers which have introduced us to immediately. With out high-risk, high-reward actions, we would not be on this golden age of expertise (which we use to flip meme cash at 1,000 TPS).
Tales about common Joes making life-changing cash result in an inner monologue of “what if?” When “everyone seems to be getting hilariously wealthy and you are not,” we’re FOMO.
Airdrops have been price it for a lot of. However initiatives have found the expansion hacking potential and the latest pattern of ‘factors’, and this course of 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. At present’s factors are predatory, lazy and are principally simply playing.
The historical past of driving crypto adoption
To grasp factors, it is very important perceive how they have been created.
Liquidity mining was pioneered by Compound, a transfer that kicked off the “DeFi Summer season” of 2020. Borrowing and lending on Compound was incentivized by way of COMP tokens. Quickly, a dozen initiatives provided comparable incentives with their very own twist. One among them, Sushiswap, boosted liquidity provision (LP) positions with its personal token, SUSHI, to “vampire assault” Uniswap, which had not but launched its personal governance token. This put strain on Uniswap to launch UNI, which it did with a retroactive airdrop for early customers. (Some joked that this was the “stimulus for Ethereum” because it was larger than a COVID stimulus test.)
The widespread attain of the UNI airdrop was an enormous catalyst for decentralized finance and attracted hordes of latest customers. This identical token dropping course of has since been copied by numerous totally different protocols on numerous totally different chains – with various levels of differentiation.
Then in 2022 got here Blur, the pioneer of factors. Customers might earn factors by buying and selling non-fungible tokens (NFTs) on {the marketplace}. By preserving the incomes standards opaque, agriculture may very well be discouraged in favor of precise use. With Blur’s unbelievable success, 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 provided by airways, motels and cafes. Simply because DeFi initiatives and cafes each name them “factors” does not imply they’re the identical. They’ve main variations in historical past and utilization, making them separate taxonomies. One is a low-stakes loyalty program, the opposite intentionally chases hype to extend stats and farm prices.
Factors immediately
The present factors meta is predatory. There isn’t any recognized reward, no timeframe and adjustments might be made at random. Rewards could also be nugatory or by no means awarded (what some name “eternally factors” as a result of they’re by no means exchanged for useful tokens). Purpose posts might be moved backwards constantly. And all on the expense of customers paying actual prices and alternative prices.
Tasks are operating wild with false promoting, selling black packing containers in a world the place transparency have to be paramount. And so they transcend what the pioneers did. Blur launched their token inside 5 months, however there at the moment are initiatives which were milking their customers for over a 12 months.
How factors must be designed
The issue with factors is just not the factors themselves, however how they’re used to prey on customers. Nonetheless, it’s potential to design a factors program that’s helpful to each the undertaking and the customers.
An important adjustments to implement are disclosing rewards prematurely, speaking a timeframe, and committing.
Solend, the undertaking I based, did this with “Factors Season 1”, the place a the minimal reward pool (which might solely be elevated) was introduced and a timetable communicated. The rewards pool began with 100,000 SLND tokens and was later expanded 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 honest, initiatives can understand the dream of clear, decentralized finance, as an alternative of constructing the methods that brought on us issues within the first place. By prioritizing ethics, we will flip factors from a speculative gamble into a useful gizmo for engagement, retention and rewards. Appropriately.