How to incentivize adoption without token: Fuji Climbing (1/2)

Existing approaches to incentivize usage and adoption of a protocol

Compound kicked off DeFi Summer in 2020 with COMP liquidity farming. The protocol started a reward program for all their users with open lending and borrowing positions. This mechanism was adopted in different forms by a lot of other projects in DeFi and it’s still one of the main ways to bootstrap adoption.

In late 2020, in response to Suhiswap’s vampire attack, Uniswap took a different path to regain its market share by issuing a token and airdropping 400 UNI (~ $1200 back then) to each user that had previously interacted with the protocol. Since then, airdrops have turned into a common practice for attracting users’ attention to a specific product although this made appear a new behavior amongst certain users: airdrop hunting.

Another well-established way to bootstrap usage is by distributing rewards to liquidity providers who are staked in the so-called “Pool 2”. Users first provide liquidity to a DEX pool and then they stake the received LP tokens. That makes them eligible to receive token rewards.

Curve took another approach with their token that was issued some time after protocol’s launch. It had become clear from the beginning that some CRV would be retroactively distributed to early liquidity providers. Curve introduced later the vote-escrowed CRV (veCrv) where users lock their tokens for a period of time in order to boost voting power and rewards. Since then veTokens are getting more and more popular and this token design has become the new standard to ensure long-term engagement.

Lately, we have seen the idea of “Protocol owned liquidity” with OlympusDAO Pro pioneering the concept of “Bonding” that tries to solve the issues with the mercenary liquidity of Pool 2. Instead of staking their LP tokens, users are enabled to sell them and acquire the protocol token at a discounted price.

There are many ways to attract users and liquidity, each of them with their pros and cons. However, what is common in all of these mechanisms is that the protocols use their own tokens as a means to bootstrap usage of their products.

How to incentivize usage and adoption of a protocol without a token?

FujiDAO has the ambition to propose a model suitable for protocols that don’t have a token yet but are willing to incentivize the usage of their pre-token product. The rules need to be set clear from the beginning so users know what to expect. Nevertheless, we deem it necessary to leave some space for uncertainty and healthy speculation inherent for every economic game.

Another goal is to make the whole process part of a story-telling by gamifying the experience. That will solidify the sense of belonging to the community and will increase chances for more users to stay long-term.

FujiDAO aims to optimize loan expenses for DeFi users by constantly monitoring the borrow markets for the best rates. Therefore we want to incentivize users to borrow through our vaults and thus supporting the goal of increasing Fuji’s market share.

We propose a mechanism in which users accumulate points that makes them eligible for a token allocation in the future. There would be an element of vesting and a promise for a payment in future token which brings us to the idea to call this “Pre-token Bonds”.

More details are going to be revealed soon.