coindesk.com
Blockchain protocols are increasingly offering "point" incentives to users, which are score-counts attached to the vague prospect of future airdrops.
Points are fueling a speculative frenzy on Ethereum that's already driven billions of dollars into "retasking" juggernaut EigenLayer and its points-granting spin-offs.
Some platforms are letting users directly trade points and bet on leverage, even though points aren't designed to have intrinsic value and are often tracked outside of blockchains.
Points can help projects incentivize healthy engagement patterns, but they risk setting unrealistic expectations for users.
There was a time, late last year, when blockchain projects started handing out "points" to early users – widely seen as a placeholder for an eventual airdrop of digital tokens. Points didn't tell you how many tokens you would get (issuers rarely confirmed that they were even tied to airdrops in the first place), but they nonetheless became catnip for cryptocurrency traders looking for high-potential investment opportunties.
With points now numbering in the billions and several major airdrops potentially on the horizon, they're suddenly becoming real money. Crypto analysts are sharpening their pencils to tot up the potential value that traders stand to gain for points – along with the big risks for investors who choose to play the game.
There's a specific catalyst now contributing to the points proliferation: the emergence of a practice known as "liquid restaking" on the Ethereum blockchain, a trend that has revitalized the chain's decentralized finance (DeFi) ecosystem.
Over the past five months, 1.5% of all ether (ETH) in circulation – some $7 billion's worth – has flooded into EigenLayer, a "restaking" platform on Ethereum that lets third-party crypto protocols borrow Ethereum's security. EigenLayer offers its depositors – called "restakers" – the ability to earn extra interest on ETH they've staked with the Ethereum network.
And EigenLayer's success has birthed a new category of crypto protocols, called "liquid restaking" platforms, offering "liquid restaking tokens," known as LRTs. Liquid staking platforms including Puffer, Ether.Fi and Renzo put user deposits into EigenLayer and offer their own users extra rewards.
To promote themselves, the liquid staking platforms have gone all-in on points, typically offering multiple different kinds to depositors, including EigenLayer "restaking points" as well as their own native points.
The rise of restaking points
Puffer recently ran a campaign offering triple points to users who withdrew their EigenLayer deposits and fed them back into the platform through Puffer instead. Ether.Fi is in running a similar campaign with its “deVamp” program, which rewards extra points to investors that redirect their EigenLayer deposits to Ether.Fi.
The tactics have paid off. Ether.Fi, the largest liquid restaking protocol, launched in March and reached a milestone $1.3 billion in deposits last week, according to DefiLlama. Puffer, the second-largest liquid staking protocol, is close on its heels with more than $1 billion in deposits, all from the past three weeks.
Additional platforms have leaned into the speculative nature of points, offering marketplaces tailor-made to boost the tallies. Pendle, for example, has drawn more than $1 billion in deposits to its platform which lets users lever up their exposure to points – a high-risk gamble that can increase a person's point rewards many times over.
Just visit the project's website, and a promotion pops up: "Catch the LRT Train!" it reads, with "Up to 30x points" for users who meet certain conditions. (When a CoinDesk reporter based in the U.S. clicked to launch the app, a page appeared indicating that "our app isn’t available in your current country.")
Other platforms have introduced ways to directly trade points. Kelp DAO, a liquid staking platform, introduced KEP this week, a token that represents EigenLayer points and allows them to be traded. Whales Market previously introduced points trading to the Solana blockchain, which has seen its own points craze.
What are points, really?
The obvious risk with points is that they are rarely tied to anything concrete.
"I don't think, necessarily, points are going to be a representation of an 'airdrop' or anything else," Puffer Finance CEO Amir Forouzani told CoinDesk. Puffer's points program has led to breathless speculation – on the project's Discord server and elsewhere – that Puffer will eventually airdrop a token. While these expectations may have helped to fill Puffer's massive, billion-dollar-plus deposit box, Forouzani says points aren't just about "incentives."
Points are "just appreciation for their participation," he continued. "That's why I believe a lot of protocols would not want to say exactly what it is being incentivized in this point system."
There's a problem to this vagueness: If points never result in airdrops, or if the drops do happen but flop with the market, users that have piled into point-based projects might feel hoodwinked – especially if they took extra risks by directly purchasing points, levering up exposure to them, or depositing money into unvetted projects for the vague prospect of future tokens.
Points are also generally tracked off-chain on project computer servers, which is anathema to blockchain's open ethos, meant to keep the playground fair and immune to tampering.
This only makes things more speculative: Since points aren't generally tracked on blockchains, there's often no way of knowing how many of a given type are in circulation. Points traders must rely on a heavy dose of pseudo-math (or hype) to figure out how a given point should be valued.
A silver lining?
If there's a redeeming value in the points system, it's that early users of blockchain projects will have tangible evidence of their contributions.
"This is a tool that allows projects to communicate to their early users the things that they care about, and it is at minimum a way for those users to track their contributions," Austin King, CEO of EigenLayer-based interoperability platform Omni, told CoinDesk.
A controversy last week involving the Ethereum rollup project StarkNet's airdrop of STRK tokens showed how the conventional airdrop playbook can backfire.
Starknet, like virtually all protocols that airdrop tokens, didn't announce the criteria it would use to dole out its STRK tokens ahead of time. For years, people "farmed" for the yet-to-exist tokens anyway – using the popular Starknet protocol, going on faith that they'd be eventually awarded with an airdrop.
That was the case even though StarkWare, the project's initial developer, warned in a 2022 blog post that its eventual token mint would be "resistant to speculative manipulation and non-value-creating gamification" – an all but direct swipe at airdrop farmers.
When the long-awaited Starknet airdrop did happen last week, it quickly turned into a public relations fiasco. Some early Starknet users claimed they received fewer tokens than they deserved – while other recipients qualified even though they were only tangentially connected – such as Ethereum stakers and Web2 developers.
Aggrieved traders lashed out on social media, accusing the protocol of taking advantage of their loyalty and then leaving them empty-handed.
With points, there's an extra degree of transparency surrounding how a user's contributions are being measured, even if projects remain vague around specific details and timelines.
"In my view, it is a step up from the absolute blank slate of people airdrop farming and not knowing how to actually help these teams build," said King.
"You can make a fair criticism that these points not being on-chain is antithetical to crypto," King said, but there's a "positive" in that points help with "aligning the interests of users and networks to help bootstrap them in a safe and secure way."