Who would not need free cash?
Factors, the quasi-loyalty packages meant to incentive use of blockchain functions by providing scrip which may in time be redeemed for one thing worthwhile, faucet into one thing primal in our reptilian brains: our hardcoded need for playing.
0xRooter is the founding father of Solend and Suilend protocols.
The dopaminergic system helped our ancestors take dangers that introduced us to immediately. With out high-risk-high-reward actions, we would not be on this golden period of know-how (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 initiatives have caught onto the growth-hacking potential and up to date pattern 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 immediately are predatory, lazy and are actually simply playing.
The historical past of incentivizing crypto adoption
To grasp factors, it is vital to grasp how they got here to be.
Liquidity mining was pioneered by Compound, a transfer which kicked off the “DeFi Summer season” of 2020. Lending and borrowing on Compound was incentivized by way of COMP tokens. Quickly, a dozen initiatives supplied related incentives with their very own twist. One in every of 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 larger than a COVID stimulus examine.)
The widespread attain of the UNI airdrop was an enormous catalyst for decentralized finance, attracting hordes of latest customers. This identical strategy of airdropping tokens has been copied by quite a few completely different protocols on quite a few completely different chains since — with various levels of differentiation.
Then got here Blur in 2022, the pioneer of factors. Customers may earn factors by buying and selling non-fungible tokens (NFTs) on its market. By protecting incomes standards opaque, farming might be resisted in favor of actual utilization. With the unimaginable success of Blur, it wasn’t lengthy earlier than each challenge had a factors program.
A typical false impression is that factors in DeFi are an evolution of loyalty factors that airways, motels and cafés provide. Simply because DeFi initiatives 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 immediately
The present factors meta is predatory. There is not any recognized reward, no timeframe and modifications might be made arbitrarily. Rewards might be worthless or by no means be distributed (what some name “without end factors” as a result of they’re by no means redeemed for worthwhile tokens). Goalposts can repeatedly be moved again. All on the expense of customers who pay actual charges and alternative price.
Tasks are operating wild with false promoting, selling black packing containers in a world the place transparency must be paramount. They usually’re pushing issues past what the pioneers did. Blur launched their token inside 5 months, however there are initiatives now which were milking their customers for over a 12 months now.
How factors must be designed
The problem with factors is just not factors themselves, however how they’re getting used to prey on customers. Nonetheless, it is potential to design a factors program that’s useful to each the challenge and customers.
The primary modifications that have to be made are disclosing rewards upfront, speaking a timeframe and committing.
Solend, the challenge I based, did this with “Factors Season 1,” the place a minimal rewards pool (which may 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, initiatives can ship the dream of clear, decentralized finance reasonably than constructing the methods we took challenge with within the first place. By prioritizing ethics, we will remodel factors from a speculative gamble into a useful gizmo for engagement, retention and rewards. Appropriately.
