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If you’ve read our article, Are Crypto Airdrops Worth Your Time? then you remember:
- Airdrops are a way of rewarding early users of a crypto project with tokens in the project.
- While there are differences, investors can think of these tokens like getting free “shares” in the “company.”
- Airdrops have both pros and cons: while they build early users, many “airdrop farmers” are just there for the free tokens.
- Airdrop farming could be worthwhile for tech-savvy investors with plenty of free time. (Be careful, though.)
- For conservative investors, you can wait until the token launches, then buy at a discount (as airdrop farmers sell their tokens).
In this guide, we’ll give you our point of view on whether crypto points – or “points farming” – is worth your time. We’ll explain how crypto points work, the difference between points vs. airdrops, and the advantages and disadvantages for investors.
How Crypto Points Work
Points are one step removed from airdrops.
As in our article on Crypto Airdrops, let’s imagine again that OpenAI is going to launch an IPO. Rumor gets out that using ChatGPT, OpenAI’s flagship product, will make you eligible for free shares in OpenAI when they go public.
In crypto, that’s an “airdrop,” only they issue tokens instead of shares.
Now, let’s say you’re a fledgling AI startup called WideOpenAI, and it’s hard to convince users there’s an airdrop down the road. To gain users, you can issue points if people use WideOpenAI. Or tweet about WideOpenAI. Or join the WideOpenAI community. And so on.
If your points program is successful enough to get some traction, you then launch the IPO, convert the points to shares in your company, and all those early users are happy.
Where airdrops are based on a promise, points provide proof.
Proof that you were engaged in the early days. Proof that you helped build the network. Proof that you “qualify” for those tokens (if they ever come).
Because points are one step removed from tokens, however, there are additional pros and cons for investors to consider.
The Problems with Point Farming
For crypto companies:
- Points = bribes: Just like airdrops, points attract a lot of junk users, so it can be hard to tell whether you really have a good product, or whether they’re just point farming.
- No real loyalty: Many of these points farmers, just like airdrop farmers, will cash out as soon as they can, reducing the value of your tokens and your company.
- Points hide performance: The focus on points can obscure the true metrics of success (like real customers and revenue), which can spell disaster later on.
For crypto investors:
- Points ≠ Promise: There is no guarantee the points will ever convert to tokens.
- Uncertain Value: Even if they do, there’s no conversion ratio, so your points may be worth next to nothing. (There are no rules that 100 points = 1 token, or whatever.)
- Centralization Concerns: And points are often stored in centralized databases, not on blockchain. Who’s auditing the points?
This hasn’t stopped the creation of a new “pre-market” for buying and selling points. This is essentially betting on the future value of points within a future airdrop – a bet on top of a bet.
And remember, points are free for companies to create, making this the most speculative of crypto bets. You have no idea how points will eventually translate into tokens – if they will at all!
The Power of Point Farming
However, there are some advantages to points programs.
For crypto companies:
- Loyalty incentives: Reward programs are a proven business model for encouraging loyalty (credit card rewards, Starbucks rewards, etc.). They can work.
- User acquisition and network growth: They are a way for crypto companies to bootstrap users, which (if successful) can lead to the network effects that genuinely drive value.
- Community engagement: They can also build community, since many crypto points programs encourage joining a Discord server or online forum.
For crypto investors:
- Profit potential: If you have free time and are geekily-inclined, then farming points could result in a token airdrop, which could make you a little money. (Maybe a lot, if the token moons.)
- Skill development: Using these early-stage products is usually technically tricky, so you’ll learn something about how they work.
- Influence on development: Being an early user means that you often have a say in how the product evolves, which can in turn make it better, leading to a more valuable token.
If you are going to participate in points programs, however, stay safe. Stick to reputable projects, and if possible, use a separate crypto wallet for your points farming, away from your primary investments.
Investor Takeaway
Points farming has both opportunity and risk.
For most investors, you can leave points to the pros. They’re speculative. There are no guaranteed returns. Getting rich from points farming is a long shot at best.
However, if you geek out on crypto stuff, points farming offers more than money. You can improve your skills, join communities, and help shape these innovative new products.
So approach points farming with a mindset that values learning and community involvement as much as increasing your bags.
But always keep a long-term mindset: remember, the earliest users of bitcoin were the ones who could have bought it for pennies. (But how many did, and held onto it for the next decade?)
Points farming isn’t a one-size-fits-all strategy. It’s a niche for the adventurous and tech-savvy, and those who enjoy the journey as much as the destination. For the rest of us, we can wait for the token launch … if there ever is one.
Health, wealth, and happiness,
John Hargrave
Publisher, Bitcoin Market Journal