“The points system is a poisonous tool for project parties attempting to manipulate the market, and in the future, there will be no participation in interactive activities involving points,” this is the latest statement from a seasoned OG, excluding points and click-farming projects as new criteria for screening interactive projects.

After EigenLayer announced the token EIGEN airdrop conditions on April 30, controversies surrounding point airdrops have not ceased. That evening, during the Bankless live broadcast with the EigenLayer founder, user comments were even disabled.

In addition to the fact that EigenLayer’s airdrop allocation was lower than the expectations of some users and the airdrop tokens were linearly unlocked in batches, EigenLayer also restricted users’ IP addresses when receiving airdrops, causing users who had already acquired a large number of points to be disqualified from receiving airdrops due to their IP addresses being blocked.

The controversy surrounding EigenLayer’s airdrop has pushed the points system model to the forefront, revealing the embarrassment of points rewards, and issues such as hoarding, dilution, and issuance hidden under the points system have also erupted.

The sentiment against point-based activities has reached an unprecedented high, with discourse rejecting participation in point-based activities spreading throughout the encrypted community. The founder of Compound voiced, “The era of points is over,” and the founder of the “originator of airdrops” suggested that projects “issue tokens instead of points.” The once highly praised points system seems to have fallen into decline in terms of reputation.

The controversial “points system”: depreciation, rat trading, big investors’ game, and opaque calculation rules

Before the EigenLayer airdrop controversy, multiple contentious issues had already emerged regarding the points system: rat trading, depreciation mishaps, PUA users, big holders’ games, opaque rules, and more. The EigenLayer dispute has simply brought to light longstanding issues hidden within the points system.

“Rat trading” and big investors’ games are the most criticized issues.

Taking the EigenLayer airdrop as an example, despite announcing the snapshot date for the airdrop on April 30th as March 15th, several large holder addresses seemed to have known insider information, as they coincidentally transferred out all deposited tokens the day after the snapshot. Legendary trader GSR, for instance, transferred out their $7 million worth of wBETH on March 16th, just a day after the EigenLayer snapshot, while Binance’s newly funded wallet similarly withdrew all of its $13 million worth of wBETH from EigenLayer on the same day.

This suspiciously precise timing of transfers has led users to suspect their awareness of insider information.

Layer2 network Blast, which has promoted the points system, was pointed out by community users for secretly increasing a large number of gold points to certain Dapps without making any announcements or disclosures.

The decentralized GPU project io.net, which was once popular due to its points, was questioned by users in April for having a points rat trading issue. Project parties and VC institutions allegedly disguised themselves as ordinary users to collectively mine points.

Additionally, issues such as point depreciation, data errors, and PUA users frequently arise due to the opaque and unclear calculation rules of the points system.

After io.net’s official system upgrade, several GPU mining users found errors in their platform points data. The official response stated that the points values displayed on the website were only from internal tests, based on partial snapshots and placeholder values from the past, and did not reflect the actual points in users’ Ignition reward plans. However, the confusion over io.net’s points data and issues such as multiple cards being counted as a single card in calculations remain unresolved.

In February, the re-staking protocol EtherFi became embroiled in a controversy over “point depreciation and point theft.” Community members reacted, noting that under the same staking amount and duration, EtherFi had about 10% fewer EigenLayer points compared to the re-staking protocol Renzo. The official response stated that the points data displayed on the protocol’s homepage was indeed incorrect, and users received many more EigenLayer points than the currently displayed erroneous data.

In March, the new points mechanism “reputation crash” introduced by Blast’s mainnet launch was accused of being PUA. The new rules required users to migrate ETH points to the mainnet to enjoy a 10x inflation, but users had to pay gas fees of around $50 for migration, which was too costly for small users. Moreover, users found that the inflation coefficient after migration was a random number between 0 and 10 times. Although Blast later claimed that it was a UI calculation error and the loophole had been fixed, it still left criticisms of the opaque points calculation rules.

For users who have not migrated to the mainnet, it means that they have no chance to double their points, and their original points value will be diluted and devalued. If they want to withdraw, they need to withdraw their funds to the mainnet and then wait for more than ten days to operate, causing users to be in a dilemma. If they do not continue to invest money and interact with Dapps, their points will be diluted by others.

Some community members expressed that Blast has led users onto a train that they cannot get off, not only erasing their previous contributions but also diluting the points mined with real money and bearing the risk of new projects such as Rug.

A netizen described Blast’s mainnet points mechanism as equivalent to your mother-in-law saying that a dowry of one hundred thousand would be enough for marriage, but on the night before the wedding, the bride suddenly asks for more money.

Furthermore, as today’s points systems are mostly calculated based on the dimensions of the amount of deposited funds and time, the financial strength of large holders can unilaterally dominate. This has evidently become a “game for large holders.”

In the EigenLayer airdrop, for instance, one whale received 3.55 million EIGEN tokens, while the total amount for the first season of airdrops was 83.5 million tokens, making their individual share as high as 4.26%.

Regarding today’s project points systems, cryptocurrency user @sunlc_crypto stated on social media that they do not plan to participate in any brushing or points-related projects in the future.

Everyone is desperately trying to increase their trading volume to accumulate points, but in the end, the interpretation of the rules is entirely in the hands of the project party. How points are exchanged for tokens, or even whether they are exchanged according to points, is determined solely by the project party.

Controversy Behind the Points System: Disproportionate Input and Output

Currently, the points systems of most projects are quite similar, primarily focusing on the simple stages of “referring others, depositing funds, earning points, and vying for airdrops.” The widespread prevalence of these points systems has led to aesthetic fatigue and even criticism.

Ken (a pseudonym), a crypto project operations practitioner, stated in an interview with ChainCatcher that there is nothing inherently wrong with the points system. Its essence is to encourage users to interact more actively with the project in exchange for points, converting qualitative measures into quantifiable indicators. If used appropriately, points are a good way to gather relevant community information about the project.

“The controversy behind the current Web3 points systems is the disproportionate ratio between users’ input and output,” Ken explained. The core of designing a points system lies in balancing the input-output ratio for both the platform and the users.

In the Web2 world, the design of points systems revolves around two crucial aspects: where the points come from and where they go, namely the acquisition and consumption of points.

From the platform’s perspective, the core of the points system design is to set corresponding point reward tasks based on what the platform wants users to do, rewarding users upon completion. After points are issued to users’ accounts, the platform needs to find ways to guide users to consume these points, thereby generating more output and increasing the platform’s revenue.

From the users’ perspective, the perceived value of points is paramount. This involves whether the items that points can be exchanged for are valuable and desirable, and whether the time and effort spent to earn points are proportional to the value of the points redeemed.

In the current Web3 world, points systems are mainly used by project parties as an incentive tool for customer acquisition and capital attraction, leveraging the expectation of token airdrops. Users need to refer others, interact, and deposit funds to earn points and vie for a possible airdrop opportunity, which is not guaranteed.

Project parties gain tangible TVL (Total Value Locked) and user data through the points mechanism, which in turn boosts their valuations.

Cryptocurrency user 0xminion mentioned on social media that project parties use points to imply to users, “Come farm with us, we will soon have tokens. If you make our metrics look good and take the risk to try our products, you can accumulate some points.” Some points systems do not welcome users who exploit the system but are pleased to have users deposit and test their products, although such users may be deprived of airdrop receiving chances.

For example, the Solana ecological derivative Drift Protocol recently launched an airdrop a few months after launching a points trading activity. However, the reference basis for the airdrop was not based on points, but was distributed to OG users. Early users who were aiming for points were in vain. There is also the potential cost of capital and time.

In addition, the current points system is mainly based on deposits or transaction volume. The acquisition of these points is based on indicators such as the number of assets, length of participation, fund size, number of transactions, etc., and has a certain withdrawal limit period, that is, users are more likely to be compared with the past. The airdrop format requires higher time and capital costs.

As a result, under the points system, users who exploit the system might ultimately find that their airdrop gains are not significantly higher than before. When calculating the final input-output ratio, they might even find themselves at a loss, which is commonly referred to as being “exploited” reversely.

Some community members complain that the points system is like a poisonous trap set by project teams to exploit users through airdrops. By leveraging the expectation of a points-based airdrop, they attract a group of users and a significant amount of TVL (Total Value Locked). This increases the project’s valuation and attracts more investment, while the project teams incur zero costs. Even if some airdrops are given later, the tokens distributed cost the project teams nothing. In contrast, users indeed invest their money, time, and effort.

The fundamental criticism of the points system is that the airdrop rewards users ultimately receive do not match the input-output ratio of their investments.

Additionally, current projects, driven by the large-scale private sales and high Fully Diluted Valuation (FDV) models brought about by the points system, often see the total value of airdropped tokens falling far short of expectations. Once the tokens are listed, their prices continuously decline, leading to a situation where users not only fail to gain but end up losing both their investments and efforts.

Business Models Created Around the Points System

Due to the nature of this “effortless gain” game and the existence of successful precedents, the points system remains an attractive strategy for project teams to try.

In December, Pacman launched the staking network Blast, adopting a points-based incentive strategy. By implementing a series of user-inviting mechanisms and a transparent points-based airdrop system, the protocol surpassed $100 million in TVL (Total Value Locked) within one day of launch, attracting a staggering $2.3 billion within three months. Blast formally initiated the wave of enthusiasm for the points system.

More and more Web3 projects are now adopting points reward systems, launching their own points-based growth strategies. Users can earn points by participating in specific tasks, and the higher the points, the greater the probability and amount of future airdrops.

Examples include Layer2 networks such as Arbitrum, Starknet, and the not-yet-tokenized Scroll and Linea; within the Solana ecosystem, exchanges like Backpack, derivatives like Drift, and AI products like io.net; and in the Bitcoin ecosystem, Layer2 networks like B²Network and BounceBit. The rise of the Eigenlayer re-staking concept has further pushed the popularity of the points system to a new peak. Around the core of mining Eigenlayer points, re-staking projects such as Renzo, Puffer Finance, Eigenpie, Swell, KelpDao, and Ether.Fi have engaged in a points competition, enabling double mining or multiple benefits from single interactions.

In February, The Block reported that the market had already seen 14 projects issuing over 111.5 billion points.

Amid the hype surrounding points, some project teams have identified entrepreneurial opportunities, resulting in the emergence of specialized points trading platforms and third-party points design products, known as PointFi.

In April, crypto KOL @MrBlock highlighted the potential of the points market to become the next token market, urging users not to miss out.

In December, the OTC points trading market Whales Market was established, enabling users to trade their earned points peer-to-peer, addressing the issue of points valuation.

For instance, the current price of Blast points is $0.00009, Eigenlayer points were priced at $0.198 before the token launch, and BounceBit points are priced at $0.012.

According to Dune Analytics, as of May 10, Whales Market had achieved a trading volume of approximately $110 million, with over 30,000 users.

Other points trading platforms include Michi Protocol, PointMarket, and Pendle, which tokenizes future points revenue.

There are also third-party products designed for points systems, such as the on-chain points management tool Stack, which completed a $3 million seed round led by Archetype in March.

Web3 reputation platform Trusta Labs is working on building an impartial, auditable third-party points platform where projects in need of points can publish their points systems.

The emergence of points trading markets allows users to discover the value of their points. Combined with clear points acquisition systems, users can estimate potential returns, enabling them to lock in points profits early through trading platforms and avoid being “exploited” reversely.

How to design a reasonable points system?

Regarding the criticisms of transparency in points systems, a crypto user known as Yelo told ChainCatcher that most of today’s Web3 points systems are designed and issued by the project teams themselves. These points are off-chain, meaning the project team can adjust the system at will. Additionally, the supply of points can be unlimited, and the methods for using and redeeming points can be modified. In other words, the final interpretation and use of points are controlled by the project issuer.

Simon, the CTO of the on-chain reputation platform Trusta Labs, also mentioned in an interview, “Off-chain points are based on the centralized project team’s database for statistics and storage. This indeed opens the door for unscrupulous project teams to engage in practices like creating fake accounts and fake points. Additionally, the total issuance of points and subsequent token exchange ratios and methods have never been as definite and public as TGE (Token Generation Event).”

To address this issue, points can be put on-chain or supervised by third-party platforms, making the total distribution and historical records of the points system transparent. There are already on-chain points products in the market, such as Stack, which can put points on-chain in an ERC20 format, supporting traceability for every points distribution data.

He also emphasized that project teams need to set different weights for various reward behaviors when designing points systems. For example, in purely staking-based points systems like Blast and Eigenlayer, the top ranks are dominated by large investors with substantial capital. This approach can exclude many long-tail users willing to participate, potentially failing to gain broad community support.

Regarding the use cases of points, a crypto user named Nancy (anonymous) responded in this ChainCatcher interview that the actual uses of points in Web3 are currently quite limited. Besides being used to vie for airdrops or exchange for tokens, there are no other applications. In the Web2 world, points have multiple uses; they can be redeemed for goods, enjoyed as discounts, or used for other benefits.

“Can the points in Web3 projects be designed for various types of rewards, from discounts and product benefits to ownership and governance of the project, even directly influencing revenue?” Nancy suggested.

On how to design a reasonable points system, Katiewav, a researcher at the crypto institution Archetype VC, posted that the main goal of a project’s points system should be to encourage product usage, not merely points accumulation. Ensuring that the points program ultimately brings users back to the product ecosystem is key to successfully initiating a points-driven growth flywheel. Encouraging points airdrops, which could lead to user attrition, should be avoided. Instead, converting points directly into product advantages, helping with feedback, improvement, and testing specific functions, is the sustainable path.

She provided an example with the social platform Farcaster Warps. On this platform, earned points can be used as gifts for other users or for discounts when purchasing NFTs within the platform. This clear use case for points reduces the risk of speculator participation.

Statement:

1. This article originally titled “ “Coupon Clippers” Trapped in Points: Rat Trading, Big Investors Taking All, and Airdrop Chances Deprived” is reproduced from [ChainCatcher]. All copyrights belong to the original author [西柚]. If you have any objection to the reprint, please contact the Gate Learn team, the team will handle it as soon as possible.

2. Disclaimer: The views and opinions expressed in this article represent only the author’s personal views and do not constitute any investment advice.

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