Web3 Incentive Program Types
For many web3 projects, token economy design is often a table of vestings and a pie chart of token distribution. However, token economy design is the best tool for coordinating user behaviors. This is achieved through carefully balanced incentives — both rewarding desired behaviors, and punishing (or at least not rewarding) undesired behaviors. But how can a web3 project answer the question “Which incentive program is right for my project”?
In the context of this research, we conducted an inventory of the popular incentive programs in the web3 space. We examined the incentive programs offered by the most popular blockchain projects.
After selecting incentivisation programs, we created an illustrative framework for classifying user insentivisation in web3. Based on the value that can be provided to the user or client, we categorized types of insentivisation. Then, we demonstrated with specific examples how a particular value for the client can be transformed into an incentivisation program.
Among the motivation that a web3 project can give to its users, investors or clients, a blockchain startup has an opportunity to:
- Allow or remove access or membership
- Apply a discount or charge a premium
- Give more rewards in the same currency or take away collateral
- Provide rewards in a different currency or take away earned reward
- Rise the value of user’s holdings or reduce its share
- Increase or decrease social reputation
- Increase or reduce barrier-to-entry costs or taxes
- Ensure positive or negative expected value
There are many ways to incentivize or disincentivize user behavior. Many web3 governance systems currently rely on transferable tokens as incentives, but these tokens have certain limitations. We should consider how each of them might be a fit for their use case. Some web3 projects are better suited for liquidity mining, token grants, and retroactive airdrops. Others are better suited for vote escrow, a share of network earnings, or option token incentives.
In the diagram below we present which categories some popular types of incentives belong to.
Token-based incentives refers to a system where rewards are tied to owning or acquiring tokens that can be bought and sold. These tokens, such as Uniswap’s UNI tokens, allow holders to vote on decisions within the project. For example, in MakerDAO, MKR token holders vote on protocol changes for the DAI stablecoin. In Aave, AAVE token holders decide which projects receive funding from the Aave Ecosystem Reserve. Similarly, in Uniswap, UNI token holders vote on fee structure changes that affect transaction fee distribution among liquidity providers and token holders.
However, what should web3 projects without a token do? Or how to insentivise users who already have a token?
We have developed a comparative framework where we have examined, using examples, how a particular method of incentivizing users can work in a web3 project. Let’s look at examples of what purposes this or that incentive program can serve.
Different incentives are also suitable for different types of recipients. Certain types of incentives are most often used for different roles within blockchain networks. Considering that the blockchain industry encompasses a wide array of project types and user roles, in this study, we have analyzed various roles of reward recipients in web3. Who typically receives rewards and what kind of rewards are received in web3 incentive programs?
In the table below we will consider the applicability of individual types of incentives.
Contact to design groundbreaking incentive program for my web3 startup: https://bit.ly/web3_incentive
At the final stage of the study, we attempted to answer the question of which incentive programs are suitable for various web3 projects. The incentive programs that are suitable for L2 blockchains are unlikely to be suitable for NFT marketplaces, and vice versa. In the course of the comparative analysis, we compared which types of incentive programs are suitable for specific web3 projects.
In the table below you can find a high-level overview of which blockchain projects may be eligible for which incentive programs.
However, web3 founders should understand that every season in web3 brings new business models, token standards, and innovative ways to attract users and customers.
If you are struggling with issues such as:
- How can I raise initial liquidity for my protocol?
- How should my decentralized business model work?
- What are the vulnerabilities in my token economy?
- Which incentive program is right for my project?
- How can I optimize incentive programs for users, validators, developers, and liquidity providers?
We can help you with these questions!
Schedule a call: https://bit.ly/GotBit_Insights
About us:
Web3 Architects by Gotbit is a multidisciplinary team of over 150 blockchain analysts, protocol architects, token economists, and web3 venture experts. Since 2017, we’ve assisted more than 500 projects in designing tokens, modeling protocol economics and incentives, attracting users and liquidity, and securing investments from top funds. We’ve effectively guided hundreds of projects from token design to post-launch support.
