Freeing Web3 Rewards
Web3 rewards programs are more closed than open. Here’s how to change that and unlock $100b in value.
Key Points in Article:
- Liquidity management is a big challenge for tokenized rewards.
- ‘Universal Direct Redemption’ of rewards solves liquidity and makes tokenized rewards programs sustainable.
Introduction
Creating blockchain-based (tokenized) rewards was once seen as a great turning point in customer loyalty. Tokenized rewards could be exchanged, freed, and irrevocably owned; opening up endless possibilities for enhanced customer engagement. (Deloitte)
“Freedom from the tyranny of expiring miles! The future is here!”
At least so we thought.
The reality is that simply tokenizing a reward, as with any other asset, does not necessarily mean it will be any better than the status quo. Conceptually, these rewards are ‘open’, but in reality their freedom is limited.
Web3’s long-standing usability problem has been a big blocker. The process of exchanging, transferring and using token-based rewards is cumbersome even for Web3 natives. While creating a token is easy, enabling customers to make best use of it beyond the issuer’s own services is hard, so most token-based rewards provide a no more liberating experience than their non-token predecessors.
Such friction limits adoption, which also creates liquidity problems.
Solving Liquidity Through ‘Universal Direct Redemption’
For token-based rewards to work in an open system, liquidity must be established and maintained. In the rewards context, liquidity refers to the ease with which the token can be quickly bought, sold, bartered or redeemed across brands. For rewards, the latter is the most important.
Creating a liquidity pool on a common decentralized exchange or getting a reward asset listed somewhere may create some short-term liquidity for holders. However, maintaining mid-to-long term liquidity, which is essential for a sustainable rewards program, is complex and may be cost-prohibitive for most brands.
Most of the time, these methods are attempts at creating artificial demand instead of sustainable, utility-based demand. They also do not solve the usability problem for open rewards — unless they can be easily redeemed for something else, their value will remain limited.
To create a sustainable rewards program, issuers need to maintain a high ‘redemption value’ for their rewards.
For the sake of this article, the ‘redemption value’ is a combination of: 1) what the reward can be redeemed for; and 2) how attractive that offer is for holders.
Games, for example, can provide in-game redemption of rewards to obtain new gear for their avatars. That has a value. But if the gear sucks and no one redeems for it, then the redemption value decreases and the rewards program may suffer.
This can happen at the macro level (none of the players like the gear on offer), or on the individual level (I have all the gear now, so what do I do with the rest of my rewards?). This is a common problem for rewards programs everywhere — maintaining valuable, coveted rewards is hard, and can require an endless cycle of having to create new, enticing offers.
Tokenized rewards can in theory help by making it easier to barter value (I’ve bought all the gear I need, so I’ll trade my game rewards for your pizza rewards). But in reality, to barter in this way is still a very high friction process.
Skipping the exchange process all together would solve this problem. If you could directly redeem your game rewards for a pizza offer, the value of these rewards would remain sustainably higher for all holders.
In order to make this ‘universal direct redemption’ work in a frictionless way, my company, My AI Inc., created the Me Protocol.
Me Protocol’s Frictionless Open Rewards™
The Me Protocol uses a specialized automated market maker (AMM) to allow for the direct redemption of rewards across any connected brand.
Anyone with a rewards program can simply connect their existing rewards (whether tokenized or not) and have them be instantly redeemable across the system. It creates a plug-and-play, ‘trustless’ system where there is:
- No need for holders to exchange rewards
- No need for anyone to buy rewards from any other brand
- No need for issuers to accept rewards from any other brand
- No need for issuers to negotiate with any other brand
- No need for issuers join a rewards coalition (e.g. Amex rewards, airline miles programs)
- No need to dilute your brand by adopting a common centralized reward (e.g. Nectar)
Literally any reward issuer can create instant liquidity for their token and maximize its value by connecting it with the Me Protocol. It is frictionless and immediate.
Freeing Rewards
Universal direct redemption fulfills the promise of tokenized rewards, massively simplifying management for issuers and utility for holders.
The Me Protocol Ecosystem has taken a major step forward in further improving the usability of tokenized rewards with the recent launch of the Me Marketplace. In the Marketplace, brands can list offers to attract new customers from across the ecosystem, and reward holders can instantly redeem their rewards across brands.
The rewards programs of Web3 projects can now interoperate with the programs of traditional brands, and traditional brands and their non-native customers can onboard into Web3 without even needing to know what a wallet is.
Want to free your rewards? Connect with us on social media to get started.
About the Author
Robert Wesley is a serial entrepreneur currently building the infrastructure to connect the world’s rewards programs. Founder @ My AI | Co-Founder @ Me Protocol.
