Former BitMEX CEO and Maelstrom chief investment officer Arthur Hayes published a blog post arguing the case for “points” as a better alternative to initial coin offerings (ICOs) and yield farming when it comes to crypto fundraising and engagement.
“Points Guard” is an essay on the new pseudo-ICO crypto fundraising and engagement method. If you don’t understand what points are and why they going to be used and abused, read on. https://t.co/fR5ruXX4cT pic.twitter.com/2E2d6yiERh
— Arthur Hayes (@CryptoHayes) February 8, 2024
On Feb. 9, Hayes wrote in a blog titled “Points Guard” that while ICOs and yield farming had their benefits, they’ve also brought about several challenges for crypto projects. For example, while ICOs may allow millions of retail investors to purchase project tokens, giving them a chance to invest early in new potential innovations, they would also attract regulatory hurdles. “When you sell something to retail, some regulators call that a ‘security’ and require you to do a lot of shit that you don’t want to do.”
On the other hand, while yield farming allows users to get tokens for using protocols, this will have repercussions if “pursued too aggressively.” Hayes explained that this could inflate the finite token supply very quickly. As a result, the token’s price could fall, leaving users with no more incentives to use the protocol.
Following these, the executive argued the case for points programs being a new way for projects to perform guerilla marketing. According to Hayes, instead of giving users tokens immediately for using the protocol, which leads to “an aggressive token emissions schedule,” the projects can provide points for participation in the protocol that could be converted to tokens at users’ will.
Hayes believes that this approach would not be considered as a contract between the project and the user for a future tangible reward and does not provide any form of fiat or crypto exchange between the project or the users. This seemingly suggests that regulators may potentially find the use of points acceptable.
While points may be a promising method to deploy for crypto projects, the executive recognized its potential to be “abused.” Hayes pointed out that a points program might only be effective if there’s a high degree of trust between the project and the users. However, Hayes wrote that there will be bad actors who will abuse the trust. The executive believes this might “kill points” as a tool for user engagement and fundraising.
The executive predicted that successful Web3 projects might eventually enact a points program before generating tokens. “This will create usage of the protocol, hype around the probable token airdrop, and a Pump Up The Jam! public listing,” Hayes wrote.