Unlocking Pointonomics

13 min readSep 3, 2024

A notable shift is occurring within the blockchain ecosystem, whereby there is a gradual transition from traditional token-based incentives to point-based systems. This novel approach employs the use of non-monetary points to incentivize specific user actions or contributions within a network, in contrast to the tradable value associated with tokens.

Subsequently, these points are typically exchanged for rewards, such as airdrops or giveaways, which are distributed periodically and provide users with additional tokens.

Prior research has demonstrated the efficacy of point-based systems in providing tailored incentives for the diverse objectives of various projects. The use of points in lieu of tokens was intended by the designers of these systems to align incentives with specific contributions.

A brief history of good points

In 2019, a paper published in Applied Sciences introduced a system for publishing digital badges using the blockchain. The system was designed to reward users with points that could be exchanged for digital badges, thereby recognizing and validating achievements or skills acquired. This mechanism demonstrates the use of points to encourage and reward desired behaviors in a non-monetary environment, while guaranteeing authenticity and traceability thanks to blockchain technology. In an educational context, for instance, a student can receive points for the successful completion of specific courses, and these points can be used to obtain digital badges attesting to their skills.
Blockchain-based loyalty programs: In the same thread, an article published in 2020 examines a loyalty program that utilizes the Waves blockchain to facilitate point-based interactions via mobile phones. The loyalty program is designed to provide customers with non-monetary incentives, thereby reinforcing their commitment to the brand. Each time a customer engages with a brand or makes a purchase, they accrue points that can be redeemed for particular rewards, such as discounts or complimentary products. This model demonstrates how a points-based system can be utilized to strengthen customer relationships and foster brand loyalty, while employing blockchain technology to guarantee the security and transparency of transactions.
In a 2021 study, the potential use of blockchain technology for loyalty programs in the context of smart cities was explored. The model put forth the implementation of a point-based system to incentivize citizens for engaging in activities that benefit the community, such as recycling, reducing energy consumption, or attending community events. In return for their input, citizens accrue points that can be redeemed for local benefits, such as discounts on public transportation or municipal services. This approach encourages positive behavior in a traceable and transparent manner through the use of blockchain technology.
The implementation of a points system for the purpose of providing incentives within the field of logistics is a proposal that was published in the Journal of Cleaner Production in 2022. The proposal suggests the use of a blockchain-based supervisory model as a means of enhancing cross-border logistics and data sharing within the context of modular construction. Modular construction is a method of building in which sections of a structure are prefabricated off-site and subsequently assembled on-site. This method facilitates more rapid and effective construction. The model employs a points-based incentive system to motivate the various stakeholders to disseminate pertinent data and oversee the logistics operations. The allocation of points serves to incentivize transparency and collaboration, thereby reducing the friction and inefficiencies that are often associated with cross-border operations.

The majority of these studies were programmatic in nature, suggesting a range of potential future applications, including but not limited to logistics operations, loyalty programs, accreditation, smart city initiatives, and blockchain governance models.
In some cases, even when the objective is to circumvent the inherent risks associated with the volatility and speculation inherent to cryptocurrency markets, as evidenced by the 2020 paper entitled “Proof of Game (PoG),” which presents a game-theoretic consensus model, points are utilized to incentivize participants to contribute to the security and maintenance of the blockchain, obviating the necessity for token rewards. This approach, as posited by the authors, offers a compelling motivation for participation and collaboration, insulated from the fluctuations of the cryptocurrency market.

The TokenUnlocks Study

The most recent article to present a global concept for this approach was published by TokenUnlocks in May 2024. Entitled Pointonomics — the Emerging Tred of Point Systems in Blockchain, the article represents the last known publication on the subject. It employs a less academic and less speculative theoretical approach, focusing on an analysis of a token’s extrinsic value. This is complemented by an operational perspective based on what we could terme a token’s “dilution dynamics.”
As you are aware, TokenUnlocks specializes in the analysis of token unlocking and unvesting dynamics within blockchain ecosystems. These on-chain processes are instrumental in comprehending the manner by which tokens are gradually made available to investors or founders.

This element of intelligence has itself the potential to significantly influence the liquidity and valuation of a token. Furthermore, this is part of a broader tokenomic approach and concern that Nomiks has extensively covered, both theoretically and practically (see our list of article below).

Pointonomics refers to the use of point systems within blockchain networks to incentivize users. Unlike traditional token incentives that have tradable value, points are non-monetary units that reward specific actions or contributions within a network. These points can primarily be redeemed for airdrops, providing users with additional tokens or rewards distributed periodically.
https://insights.unlocks.app/tokenomics-insight-pointonomics/

At Nomiks, we felt we had to respond, in line with our vocation, with a general tokenomics into which such Pointonomics could be inserted in order to unlock its full potential.

At Nomiks, our perspective is that the minimization of disadvantages is a matter of tokenomics. This can facilitate the distribution of points (ensuring their convertibility) and, given the diversity of users, reflect a certain degree of fairness. In other words, it is imperative that a certain meritocracy is upheld. This must be done as part of a general policy of developing incentive centers through the tokenomics protocol.

The market, observatories, and use cases

Blockchain projects incorporating point systems, or Pointonomics, are experiencing a period of significant growth, offering new ways of incentivizing and rewarding users.

Two strategies are commonly employed by blockchain projects to attract and engage users: giveaway campaigns and airdrops. However, there are subtle differences between the two in terms of their approach and implementation.
A giveaway is a contest or promotion in which participants can earn rewards by performing specific actions, such as following a social media account, retweeting a post, joining a discussion group, or subscribing to a newsletter. Such actions are frequently devised with the objective of enhancing a project’s visibility, attracting new users, or fostering community engagement. The rewards offered in such giveaways may include project tokens, non-fungible tokens (NFTs), merchandise, or other exclusive benefits. In the context of blockchain technology, an airdrop refers to the distribution of free tokens directly into the wallets of users. Airdrops are frequently employed to cultivate a user base for a nascent token, disseminate governance shares, or bestow tokens upon devoted token holders of a project. In contrast to giveaways, users are not required to actively engage in contests to receive an airdrop. Rather, they must merely possess a specific token, have utilized a designated platform, or be included on an eligibility list delineated by the project.

Giveaways and airdrops can be combined. In 2023, several blockchain projects used giveaway campaigns to increase engagement and grow their user base:

Blur: This NFT trading platform ran a giveaway campaign where users could earn Blur points based on their trading activity on the platform. These points could then be redeemed for Blur tokens in a subsequent airdrop. This model drove an increase in trading activity, increasing liquidity and engagement on the platform.
Arbitrum’s Odyssey: Arbitrum, a scaling solution for Ethereum, launched a campaign called Odyssey where users could complete certain weekly tasks on the Arbitrum network to earn NFTs. These NFTs not only had symbolic value, but could also offer future rewards or benefits, thus increasing users’ motivation to interact with the network.
Galxe: Galxe, a decentralized reputation management platform, organized regular giveaways in 2023 to encourage users to participate in reputation verification campaigns. Participants could earn Galxe tokens by completing tasks such as verifying their social identity or participating in community events.

A 2023 study conducted by DappRadar found that such projects using giveaway campaigns saw an average 22% increase in their user base and a 15% increase in token price within the first three months of launching these campaigns. These giveaway campaigns often rely on points-based systems, so these figures can be seen as an illustration of the positive impact points-based systems can have on initial user adoption and associated token valuation, demonstrating their ability to generate engagement and attract new participants.

A January 2024 article from The Block explores the growing trend for projects to replace airdrops with point systems to reward loyal users. While these points are intended to encourage active user participation, they are provoking mixed reactions within the crypto community. Critics of these systems point out that points have no real value, are often unlimited, and are not transferable, making them unattractive compared to token airdrops, which can have significant monetary value. Points systems are perceived as promises without guarantees, reminiscent of traditional Web2 loyalty systems, frustrating some users who prefer immediate, tangible rewards. Despite the criticism, venture capitalists (VCs) see the benefits of points systems. They appreciate the flexibility they offer to test market hypotheses without the regulatory constraints (as noted above) and costs associated with token launches. Points allow for fine-tuning of incentive mechanisms before committing to token creation, which can be complex and irreversible. VCs also see points as a method of attracting and maintaining long-term user engagement (although they recognize that this approach may be a passing trend).

Consider these impressive numbers: In January 2024, The Block’s report shows that about 40.6 billion points were distributed by just 12 projects. But by February 2024, that number had tripled to 115 billion points distributed across 14 projects. This rapid increase suggests, if anything, the growing adoption of points systems as a means of encouraging participation and engagement within blockchain ecosystems.

Observations and monitoring tools

To better understand the evolution and impact of points systems, several monitoring tools and tracking platforms are available. For example, CoinGecko now includes lists of projects using airdrops, providing insight into projects using leaderboards or points systems to attract and reward users (CoinGecko Q2 2024 Report). Other sites such as Airdrops.io provide detailed information on recent, announced and future airdrops, making it easy to track trends in point distribution and incentives.

These tools demonstrate that ongoing monitoring and strategic analysis of points mechanisms is critical for protocols seeking to maximize their impact and adoption. By integrating an active search and campaign design tool, as suggested in internal discussions, protocols can not only plan effective incentive campaigns, but also quickly adjust their strategies in response to market trends.

Use Cases

The use cases for points systems on the blockchain are diverse, offering incentive mechanisms tailored to the specific needs of different protocols. Points correspond to an incentive policy. The protocol controls

Eigenlayer points allocation mechanism: Eigenlayer is a “restaking” protocol that allows Ethereum validators to reuse their assets to secure third-party protocols. Users who choose to “restake” their ETH are rewarded with points. These points are awarded based on the value of the restacked assets and the duration of participation. The longer a user contributes and the larger the amount, the more points they accumulate. These points can then be redeemed for token airdrops or other rewards, creating an incentive for continued participation and support of the network.
Ether.fi point allocation mechanism: Ether.fi is a decentralized restake protocol that encourages users to stake their ETH over a long period of time. Ether.fi’s point system works with a point multiplier that increases with the length of time a user has been staking. For example, if a user stakes his ETH for a long period of time, he will not only receive points based on the amount he has staked, but also a multiplier that increases those points in proportion to the length of time he has been staking. This approach encourages long-term staking behavior and aligns users’ interests with the long-term stability and security of the network.
Mitosis Protocol: The Mitosis Protocol focuses on facilitating inter-chain asset transfers, ensuring interoperability between different blockchain networks. To encourage active user participation, Mitosis uses a points system to reward actions such as providing liquidity, participating in governance decisions, and contributing to community initiatives.
Pendle Finance: Pendle Finance is a decentralized finance (DeFi) protocol that allows trading of future returns. Points play a central role in incentivizing the provision of liquidity. Users who provide liquidity to specific pools or participate in token trading receive points in proportion to their contribution. Pendle Finance’s points system is designed to be flexible, allowing users to move from one strategy to another according to their preferences and market dynamics.

These recent use cases for points systems in blockchain, exemplified by protocols such as Eigenlayer, Ether.fi, Mitosis, and Pendle Finance, mark a significant evolution from early applications of these systems. While early studies focused primarily on symbolic, non-monetary rewards, such as the acquisition of digital badges to validate skills or loyalty programs to increase customer loyalty, today’s applications go far beyond this. They integrate points into governance and security mechanisms, complex liquidity systems, and stakes incentives, aligning users’ interests with platforms’ strategic goals.

This transition reflects a maturing of the blockchain ecosystem, where points systems no longer serve merely to incentivize desired behavior, but play a critical role in the incentive structure and long-term viability of blockchain networks.

The Nomiks Approach

For projects such as Eigenlayer, Ether.fi, Mitosis Protocol and Pendle Finance, the Pointonomics concept offers a number of advantages in terms of incentive management. However, certain drawbacks of point systems (see above) can limit their effectiveness and overall appeal. This is where Nomiks comes in with its expertise in tokenomics and incentive regulation, playing a key role in maximizing the benefits of these systems while minimizing their shortcomings. But also to ensure fairness. With two goals in mind;

Minimize the drawbacks associated with inflation and the attractiveness of points: One of the main challenges of points systems is that they are open-ended, which can lead to inflation and a reduction in their perceived value. For example, in the case of Eigenlayer, points are awarded based on the value of the assets contributed and the duration of that contribution. To avoid point inflation, we need to build in mechanisms to control the issuance of points, aligning them with a precise schedule of rewards and unlocks, ultimately aligned with the distribution of tokens themselves and their supply, such a schedule must include caps and adjustments according to market demand and ecosystem goals.
Similarly, to counteract the diminishing financial attractiveness of points, a conversion or compensation system must be provided where points accumulated through specific activities (such as multiplier bets on Ether.fi) can be exchanged for tokens or financial rewards at predetermined times to guarantee a financial gain that is certainly indirect but not depreciated, a condition for a points system to be attractive and stable.
Ensure a fair distribution of points and rewards: But there’s more. Fair distribution of points is critical to the success of these systems, especially when different users perform different tasks. For example, Mitosis Protocol awards points for different tasks:

Providing cash,
Participating in governance decisions,
contributing to community initiatives.
Nomiks could play a key role in ensuring that point systems are designed to fairly reward user contributions, regardless of their type or size.
While in the Pendle protocol, a user earns points;
for every hour his or her assets are locked in a liquidity pool.
Such a system maximizes potential profits while offering options tailored to different investor profiles: point maximizers can accumulate points for future rewards, while risk-averse investors can focus on fixed, secure returns.
In both cases, users must receive points fairly. By monitoring and analyzing the distribution of points and their conversion into rewards, the tokenomist serving a project owner can ensure that each user receives rewards commensurate with his or her effort and contribution to the ecosystem.

Conclusion

Integrating pointonomics mechanisms into a broader tokenomics framework offers significant strategic advantages for blockchain protocols. Recent discussions have highlighted that tools for designing active quests and campaigns could play a central role in protocol launches. Such a tool would allow projects to dynamically structure incentives, adjusting distributed points according to user participation and ecosystem goals. By aligning the issuance of points with a carefully planned schedule of rewards and releases, projects can minimize the risk of inflation and maintain the attractiveness of points. What’s more, by ensuring that the distribution of points is fair and in line with user contributions, projects can avoid the frustration and perception of unfairness that can damage community cohesion.

This is what Nomiks has set out to achieve by developing a methodolgy for its clients integrating all pointonomics within a tokenomics framework.

Stay focused to be informed about the engineering solutions of such an approach! We’ll discuss it in more detail in a future article.

Spreading the word about our field is a long-term task that we approach with equal enthusiasm and diligence. Here are just a few examples for the reader’s reference: