The Problem with Free Money

In case you haven’t noticed, it’s free money season in crypto.

That’s right, the airdrops are landing in their numbers but this time they’ve got a slight twist to them. Instead of viewing a number on a screen that tells you your allocation, you’re placed into a vaguely obscured points program.

These points programs are attracting hundreds of millions of dollars in TVL to protocols that opened their doors for business a matter of weeks ago. On paper, this sounds like the stuff of dreams for crypto founders, but as we all know, there’s no free lunch.

The allure of a sizeable airdrop is enough to capture the attention and imagination of many in the crypto space - myself included - but the companies running these incentive programs must question what they’re looking to get from this exercise. A one-time dopamine hit doesn’t last long. From that point forward, you’ve trained an expectation into your users that becomes increasingly difficult to fulfil.

It begs the question, “are these even the users I’m looking to attract?” In the majority of cases, the answer is no.

That doesn’t mean there isn’t a place for these point systems in crypto, nor are they unique to the crypto space. Airlines, credit card companies, coffee chains, and many more have been using these systems to promote loyalty for decades - and there’s plenty to learn from how they apply them.

I’ve just published a short essay that examines how point systems are being used in the crypto space, and how they can be designed in ways that truly promote loyalty and expand the lifetime value of customers. Whether you’re a builder in the space or working in growth across other industries, there’s much to be taken away from it.