Lijin: Points are sweeping through Web3 applications—what can we learn from Web2?
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Lijin: Points are sweeping through Web3 applications—what can we learn from Web2?
Having points changes the type of users who use the app.
Navigating Web3 tides with focused insightsAuthor: Li Jin, Co-founder of Variant Fund
Translation: 0xjs, Golden Finance
Almost overnight, points have become the zeitgeist of the crypto era—an emerging tool for app developers to boost user retention and engagement.
Across the crypto space, founders are adding off-chain points programs to their applications—from Rainbow Wallet rewarding users with Ethereum usage points, to Friend.tech leveraging points to drive user participation, to NFT marketplace Blur’s new L2 Blast incentivizing users to bridge assets through Blast Points (amassing over $800 million in TVL since its November launch). In some cases, these points imply a future fungible token with real economic value; in others, users themselves make that leap of faith. This trend emerges amid broader exploration into product-market fit for crypto products and methods for attracting users during bear markets.
Yet beyond cryptocurrency, points programs have long been staples of consumer apps—from gaming to brand initiatives like Sephora Beauty Insider or Starbucks Rewards. Broadly, points programs let users earn points by completing various activities and redeem or use them in multiple ways, aiming to incentivize engagement.
A decade ago, I built Shopkick, a Web2 mobile shopping app with three million monthly active users and partnerships with national retailers such as Macy’s and Best Buy. The app rewarded user behaviors like walking into physical retail stores, engaging with in-store products, and browsing within the app. We created a program where users earned in-app points through these actions, redeemable for gift cards across merchants.
Some lessons from that experience can help guide Web3 projects developing points programs:
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Any form of extrinsic motivation distorts user behavior
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Points programs change the type of users who choose to use your app
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Maintaining ambiguity around point value gives you flexibility
Let’s explore each in turn.
1. Under points programs, user behavior shifts in response to incentives
People respond to incentives, and inorganic activity arises as a direct result of our points system. Behaviors like immediately entering and exiting stores just to collect points sprang up—actions people would never otherwise take without external motivation. We addressed this by capping the number of points users could earn from certain activities and implementing fraud detection systems.
Even if users have natural interest in your product, the presence of points distorts their behavior. Consider customers waiting for discounts at a retailer that frequently runs sales—the store trains its customers never to pay full price. Similarly, points can train users to seek out money-making opportunities they wouldn’t otherwise pursue. In the long run, short-term gains in user activity may come at the expense of business health. These negative long-term effects may take years to surface and are difficult to reverse. One example is JCPenney’s failed “everyday low pricing” strategy after years of deep discounts and coupons.
Due to the distorting impact of incentives, Shopkick also had to carefully manage how we monetized and tracked metrics as a startup. Because our revenue came from retailers and brands interested in boosting engagement, understanding the value of user behavior was critical. Incentives altered the value of walking into stores or interacting with products, so closing the loop and tracking ultimate KPIs of interest—conversion and revenue lift from our user base—was essential. Founders designing points programs should carefully define KPIs tied to final objectives, not merely incentivized actions.
2. Having points changes the type of user who uses your app
Points don’t just alter user behavior—they actually shift the composition of your user base. Many developers hope points will improve retention and engagement, but more fundamentally, points systems change who decides to use your app in the first place. While we designed Shopkick with shopping enthusiasts in mind, the existence of points attracted bargain hunters and extreme couponers—akin to real-life "airdroppers." This reflects psychological research on how economic incentives can crowd out intrinsic motivation.
This shift in user demographics can be acceptable if the users attracted by extrinsic incentives have reasons to stay (ongoing incentives and/or actual PMF), or if they still net benefit your specific business model—think credit card points or airline miles optimized for frequent flyers. In our case, we had a sustainable business model that could fund the ongoing existence of the points program. But any app offering rewards unsustainably from its balance sheet should proceed cautiously, recognizing that users who only responded to incentives will churn when subsidies end—especially because they were never the target audience for the core product.
3. Maintaining ambiguity around point value gives you flexibility
If you're going to tie points to some real economic value, best practice is to keep the exact value unclear. This allows you to adjust point value at your discretion to manage costs and test incentives, while preserving user enjoyment. For example, restaurant loyalty and rewards network Blackbird provides users with $FLY tokens (off-chain), but keeps the specific value ambiguous, stating in the app: "It'll be redeemable for incredible things like free cocktails and VIP access."
Specifying an action = X dollars may demotivate users if the amount seems too small. In Shopkick’s case, points could be converted into various gift card values, but redemption effectiveness varied across different rewards. When users walked into stores or performed other actions to earn points, they didn’t think about the dollar value of their action (which was nominal) but rather focused on points, which felt more meaningful.
4. Points are necessary
I hope that in the crypto world, implementing points on-chain can create interesting experiences for builders and users alike. While the points program I worked on at Shopkick was limited in scope to our own app, using blockchains to track points could enable application ecosystems to build around them. This could unlock fascinating new user experiences. In a shopping context, it's easy to imagine other brands and retailers wanting to identify the most loyal shoppers at competing stores and offer them promotions accordingly—a precedent already seen in aviation with status match programs. For users, interoperable points across multiple apps could add significant value, reducing the burden on each app developer to bootstrap their own utility.
While I’ve outlined several important considerations around points programs, it’s worth noting that I’ve also seen real benefits. At Shopkick, we deployed points strategically to incentivize channel adoption and change real-world behavior. With relatively small funding, we achieved significant impact on long-term retention and referrals. Details matter—building effective points programs requires continuous experimentation and iteration, modeling economic impacts, and rigorous KPI tracking.
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