In March 2024, Christie’s announced SOURCE [On NFTs], the auction house’s first onchain generative art collection. The sale comes exactly three years after the digital artist Beeple sold a work of digital art through the same auction house for $69 million. 

It’s a development that would have likely caught the attention of the 20th-century philosopher and cultural critic Walter Benjamin. Benjamin was deeply interested in the interplay between technology and culture, and how each shapes the other. In Benjamin’s era, the technologies in question were photography and film. Today, they’re the internet and AI. 

Benjamin’s work—epitomized in his 1935 essay “The Work of Art in the Age of Mechanical Reproduction”—raises important questions about the intersection of art, technology, and culture. Where does the value of art lie in a time when it can be reproduced at scale? What is the relationship between an original work of art and its copy? How does mass-reproduced art intersect with and impact culture—specifically, politics? 

21st-century technologies both extend and complicate Benjamin’s arguments. The very act of creation can now be digital—eroding the entire concept of “the original.” And with the advent of generative AI technologies, the line between original and copy, author and reproducer, and between reality and fiction, has grown even more amorphous. 

The blockchain brings new dimensions to the discussion on art's value, authenticity, and relevance—and a new resonance to Walter Benjamin’s work. Through ownership tracked via a blockchain, crypto returns the idea of provenance and originality to digital art, restoring Benjamin’s concept of the “aura.” At the same time, crypto renews what Benjamin calls the “cult value” of art, particularly through rituals and traditions that arise from community ownership. And in an era of increasing cultural and political atomization, tokens present new pathways for fostering community cohesion and collective action in ways that both echo and challenge Benjamin’s ideas about the relationship between art and politics. The result is a redefinition of the relationship between art, technology, and culture in the 21st century.  

An enduring question is: what is it about a work of art that makes it special? Why do enthusiasts flock to the Louvre to see the Mona Lisa, or spend millions of dollars on an original artwork when they could see or own physically identical reproductions?

The answer seems to have its roots in the presence of the artwork—its specific existence, the thing that makes it unique from any other work. Benjamin has a word for this quality: the “aura,” which he defines as an artwork’s “unique presence in time and space, its unique existence at the place where it happens to be.” For Benjamin, the aura is intimately tied to the authority and authenticity of the work; in the age of mechanical reproduction, he argues, both the authority and authenticity of art are under threat. 

Benjamin argues that mechanical reproduction erodes the idea of the aura. The concept of the aura is only further complicated by digital (re)production. Art critic Douglas Davis observes in his 1995 response to Benjamin, digital reproduction makes it so that “the fictions of ‘master’ and ‘copy’ are now so entwined with each other that it is impossible to say where one begins and the other ends.” 

Crypto has a unique ability to restore the concept of the aura to art, because it makes it possible again to talk about an “original.” By tracking an artwork on a distributed ledger, crypto traces the provenance and ownership of a digital asset. This ensures that each digital artwork is uniquely owned and authenticated, able to be traced back to its creator’s cryptographic signature, thereby reimbuing digital work with an aura. 

Many think about the value of art in economic terms. But Benjamin is equally, if not more, concerned with the cultural value of art, which he separates into two distinct axes: cult value and exhibition value. 

The concept of exhibition value is relatively straightforward. It’s the value of an artwork for its ability to be displayed and viewed in public spaces, museums, galleries, and exhibitions. 

Cult value—which Benjamin refers to as the “original use value” of art—refers to something more specific and, arguably, more interesting. 

For much of human history, art was intimately connected with religion and ritual. There was something mystical and mysterious about engaging with artworks in sacred spaces. “The work of art in prehistoric times [...] was, first and foremost, an instrument of magic,” he writes. Even in a more secular sense, art has served as a conduit for expressing and embodying deeply held communal beliefs, values, and narratives, whether religious, ideological, or philosophical.

Benjamin suggests that, like the aura, the "cult value" of art has waned over time, giving way to the modern capitalist concept of "exhibition value"—that art exists in and of itself, encapsulated by the phrase “art for art’s sake.” The digital age has accelerated that process. Artworks are often evaluated and appreciated solely for their ability to be seen: the more likes or views something has, the more valuable it is. At the same time, the consumption of art has become increasingly individualistic, with consumers engaging with art in isolation, rather than through communal experiences.

Here again, crypto provides a counterbalance. Crypto has the potential to revive the idea of cult value, albeit with a distinctly online twist. Just as traditional art was once intimately connected with communal rituals and beliefs, crypto projects create a sense of belonging and shared identity among their holders. NFT projects like Bored Ape and Botto (a collectively governed AI artist) and even memecoins—which could be regarded as a form of crypto art—have their own rituals, languages, and distinct shared spaces online. That set of rituals may carry an economic valence, which is one dimension of the common interests among their communities. Crypto art is deeply participatory in nature, allowing individuals to directly engage with, contribute to, and shape the cultural significance of these projects, reinforcing their cult value.

It’s tempting to read Benjamin in a purely pessimistic light, as bemoaning the loss of the aura and the ritual value of art in the face of mechanical reproduction. But beneath this apparent lamentation lies a more nuanced exploration of the transformative political potential inherent in the democratization of art. 

Benjamin sees mechanical reproduction as a profoundly democratizing force. He refers to a “tremendous shattering of tradition” and a “contemporary crisis and renewal of mankind” that is “intimately connected with contemporary mass movements.” In a world where the aura of art has deteriorated and exhibition value has replaced cult value, Benjamin argues that the meaning of art becomes grounded in something else: specifically, politics. He uses the example of a photographer in Paris, photographing the streets “like the scene of a crime, stating that photographs “become standard evidence for historical occurrences, and acquire a hidden political significance.” Iconic images can be politically significant, galvanizing action.

Benjamin, a staunch socialist, points out that photography, “the first truly revolutionary means of reproduction,” arose “simultaneously with the rise of socialism,” drawing a direct line between photography’s ability to democratize art and socialism’s promise to democratize politics. For example, photography in the Great Depression drew attention to the plight of workers in ways that built momentum for projects that supported workers. The politicization of art can also be profoundly dangerous—as a Jewish man living in Fascist Germany, Benjamin was deeply concerned with the ways art could be co-opted by totalitarian movements to hijack and manipulate attention and perception for their own agendas (see: Leni Riefenstahl’s Triumph of the Will). 

The age of digital reproduction has given us some extreme examples of art’s political implications. For example, there is the proliferation of memes surrounding the campaign and presidency of Donald Trump (some issued by him directly). Meanwhile, the advent of artificial intelligence and the rise of disinformation and deep fakes undermine our shared sense of reality. 

With regards to how crypto intersects with art in the political arena, there are several vectors that intersection can take. Crypto can be profoundly liberatory in an economic sense, as it allows for more accessible ownership from a larger set of participants, and enables financial gains from that ownership. As I recently wrote about the attention economy in crypto, “The difference [between crypto] vs. web2 is that everyone in the value chain can benefit from being owners of "attention assets" -- whether they originated the meme/media or merely paid attention early.”

The censorship-resistant nature of blockchains also protects artistic expression from suppression. During the COVID lockdowns in China, netizens uploaded videos and messages onchain that had been taken down from social media platforms by censors, using NFTs as a tool of political resistance. And as I’ve mentioned, crypto is intensely participatory, incentivizing the creation of communities around shared values and enabling novel forms of capital formation that could be leveraged toward political aims. For example, in January 2023, Pussy Riot’s Nadya Tolokonnikova and artist Shepard Fairy encouraged supporters to express their “proof of protest” through an open-edition NFT collection called Putin’s Ashes, where the proceeds were donated to Ukrainian soldiers. 

Ultimately, crypto art—and crypto in general—present a tool for community coordination and capital formation, which has political implications. Just like the web2 internet leveled information access and creation, mobilizing millions of people, crypto – including crypto art – presents a tool for economic coordination and community formation. Unlike in Benjamin’s era, where audiences were largely passive consumers, they now have the opportunity to own and engage actively with these assets. 

The story of the intersection of art and culture is a story of evolution and adaptation. It encompasses the diverse ways in which artistic expression reflects, shapes, and responds to cultural values, societal norms, and technological advancements. As for how crypto will impact that story, that’s a chapter that’s still being written.

Benjamin observes that the “superstructure”—the realm of art, culture, politics, and society—takes time to catch up to changes in the means of production (technology). Whereas painting is an artistic tradition that stretches back over millennia, digital means of artistic production measure their age in decades, and crypto is younger still. It will take time for the cultural and political implications of crypto to fully manifest.

For Benjamin, art represented a site of resistance and transformation, capable of challenging dominant power structures and sparking social change. The integration of blockchain into the art world presents new opportunities for artists, collectors, and communities to engage in new ways. As these technologies continue to evolve, they have the potential to revolutionize not only the art market but also the broader cultural and political landscape in ways that, for now, we can only imagine.

At Variant, we’ve been spending a lot of time in the Farcaster ecosystem. We often find ourselves discussing the ideas that we’d like to see – both as users and as investors.

Below is a list of requests for startups that we’ve compiled across the team.

We’re also hosting a Farcaster developer meetup + brunch on Saturday, April 6 at our office in NYC, which you can apply to here: https://lu.ma/p43szrum. These ideas are a subset of what we hope to see getting built, but if something on this list is something you’re excited to work on (or already are working on!), we hope you’ll reach out.

In New Opportunities in the Farcaster Stack, Alana wrote about how several open opportunities are to build clients that treat new data types — specifically, frames and tokens — as first-party citizens.

We haven’t seen anything that’s quite cracked either of those yet, but we’d still very much love to. So, it felt worthwhile to elaborate on what those opportunities might look like.

The goal of a frames-first client would be twofold: enable persistent frames and improve discovery of new frames. 

Today, it’s difficult to revisit a frame – they’re displayed in-feed and treated much the same as posts or videos are. But this doesn’t make much sense: post-related content is consumed quickly and forgotten even quicker.

Persistent frames need a display more like a Home Screen than a feed. There is also likely value in a tagging and search system for frames. This could help users rediscover frames they saw in a feed elsewhere, filter by all variations of frames created using the same underlying tool, compare frames within a given category (e.g. prediction markets), and more.

What might the discovery of new frames look like? Again, viewing frames more like a library of content than ephemeral in-feed posts creates a prompt to look beyond existing social displays. Maybe the right form factor is something akin to Netflix’s “top 10 trending.” Maybe it’s something else. My sense is that there's a lot of inspiration to be drawn from existing display factors, especially from apps that folks might not think of as traditional “social” interfaces.   

- Alana

The other new data type is tokens. There are a lot of interesting ways to create asset-centric clients that lead to more delightful consumer experiences.

An example of a token-centric client is one that’s built around a popular community currency. Currently, there are numerous community currencies trending on Farcaster, each having particular rituals around them, like tipping and rewarding content aligned with community values. As such, those tokens have latent curation value and could be utilized in a client to prioritize the feed and content recommendations. (See also: https://warpcast.com/li/0x3f93ef98)

A great benefit is that tokens are programmable. As such, they can be extended and integrated throughout a client in novel ways. One idea might be to leverage Solana’s token extensions. For instance, a developer could experiment with the token reallocation extensions to reward users for “hot streaks” (e.g. if a user posts a certain number of days in a row) or lack of activity. 

But arguably most powerfully, the asset can be used to bootstrap distribution. Getting people to download a new app feels by far the hardest part of building a successful new Farcaster client. The opportunity to make money is a powerful motivating factor. It’s also one that we’ve seen work well in the web2 app playbook – UberEats offers in-app credit, Cash App provides a $5 sign-up bonus, etc. This, combined with the ability to piggyback off of existing token-oriented communities, can help a new client get its first few thousands users.

- Alana & Li

Another approach to building a new client is designing it for an audience that has more specific product needs. For example, there's room to build a client that serves crypto degens as a first-class audience. A client focused on degens might have features that put assets and profit front and center, with trading features, views of trending assets in Farcaster, and aggregation of earnings opportunities. There could be other such personas that a client targets, where the feature set is sufficiently differentiated vs. Warpcast.

- Li

In Multi-Hit Wonders, Li outlined that a new strategy for consumer application builders is to launch multiple successive applications, and use tokens or another mechanism to stitch together community attention across apps. Frames could be suited to this strategy, with multiple mini apps and games launching and capturing attention transiently. 

One of these applications could be a “I’m feeling lucky” frame, which takes some set of randomized content – could be a random Google search, a random Wikipedia page, even a random set of casts on the network – and displays one at random whenever someone clicks “I’m feeling lucky.” This idea could also utilize in-frame transactions, in that every so often someone wins a community token reward and can claim it. 

- Li & Alana

Memecoins are having a moment in crypto. We think the best memecoins start community-first, rather than asset-first (examples include $MOG, etc.). A frame that makes it easier to create a memecoin from within the social feed can make sense in enabling assets to be issued and traded directly in-feed.

- Li

Over the past few months, Telegram bots have facilitated billions in trading volume, with leading Telegram bots like BonkBot reporting over 250k lifetime users and weekly volumes in the hundreds of millions. The demand for Telegram bots showcases that users are actively looking for more convenient and social experiences for trading. There’s an opportunity to build new Telegram bots native to the Farcaster discovery experience that offer customized trading experiences. 

Farcaster channels present an opportunity to bootstrap new types of intra- and cross-channel marketplaces. Imagine if subreddits enabled users to transact inside of their communities, instead of sending users off-platform. Channel social graphs coupled with in-frame transactions could enable  channel-specific marketplaces. Farcaster could also support aggregation of those channel marketplaces, or a headless marketplace layer.

- Mason

Recently, Bluesky, the decentralized social media app, announced that it was open-sourcing its moderation tool, called Ozone, to let anyone run their own content labeling service. Labels can be informational, topical, curational, or moderational, and users can tune how the app handles various labels.

As Farcaster grows, we think there’s an opportunity to build a decentralized content moderation network where users can contribute labeling data to casts – potentially coordinated and incentivized by a token. Farcaster clients can ingest this data and customize what content to expose, or let users choose, based on those community-driven labels. 

- Li

One of the main concerns with centralized social networks is that centralized tech companies control what content users see on their feeds through their own proprietary algorithms. With a decentralized social network like Farcaster, there is an opportunity for third parties to create customized recommendation algorithms or discovery curation, decoupled from the client. 

What this could look like is developers creating models that users can subscribe to or switch for better discovery or reduction of topics such as trading, politics, or memes to put users in control of what types of content they digest. Additionally, other participants could boost relevant posts similar to how traditional ads work on traditional social networks. 

- Li & Jack

The next big thing may start out by piggybacking off a popular memecoin.

One emerging go-to-market strategy is to draft off a memecoin that is gaining adoption and momentum. While traditional GTM consisted of first building a product, then building a community around it through marketing and memes, this new playbook involves identifying a vibrant community of users around a memecoin, then building a product that incorporates that token.

By launching a project that natively integrates with a popular memecoin, the new app/infra can mobilize the memecoin’s holder base, who can experience more utility from their tokens.

Here are some examples:

• BONKbot, a Telegram trading bot on Solana, originated from the $BONK token, a Solana memecoin that was airdropped to users at the end of 2022. An independent team then launched the trading bot, which utilizes part of the fees from trading to buy and burn the BONK token, thereby economically aligning itself with tokenholders. The trading bot recently crossed daily trading volume of $200 million per day (compare that to Base, which does about $200 million in daily trading volume).

• This strategy also works for infra projects. Take, for example, $SHIB launching the Ethereum Layer 2 Shibarium, which acts as a token sink for SHIB by using transaction fees to burn SHIB tokens. By incorporating the token into the L2, this strategy activates the existing community of holders to overcome the cold start of a new L2.

• Berachain, a bear-themed EVM-compatible blockchain that launched its testnet in January, also had its genesis in memes of the NFT variety. SmokeyTheBera originally started an NFT project in 2021 called Bong Bears, and over time, built a community that it has parlayed into an engaged developer and user base. 

Given the high engagement and tribalism of top memecoin communities, I think this strategy of leveraging memecoins for one’s GTM will become increasingly popular across the stack, enabling other projects to bootstrap attention. For anyone building a crypto consumer app, for example, adding utility for memecoin can activate tokenholders, who are naturally more inclined to find new ways to utilize their tokens. Drakula, a short video app, and Perl, a prediction market game, both accept $DEGEN for payment, attempting to capitalize off the momentum of that holder community (which numbers over 44K wallets as of March). The increase in token usage and, potentially, value may then drive a virtuous cycle, where user interest may increase for both the token and applications that integrate it.

We’ve also seen projects go the other direction, starting product-first and then launching (or are closely associated with) a memecoin that generates more interest for the project. For example, a contributor linked to Jupiter, a decentralized exchange aggregator on Solana, launched the $WEN memecoin in January 2024, airdropping it to over 1 million wallets that had swapped more than $5 on Jupiter. As the first token launched through Jupiter’s LFG Launchpad, it also piqued interest for that platform.

For projects that are exploring this GTM strategy, some considerations include the distribution potential of different memecoin communities; complementarity between the memecoin’s tokenholders and the project’s intended audience; and degree of existing integrations and saturation in the ecosystem (once a given memecoin is accepted in 100 apps, will the 101th garner as much attention?).

It’s also worth mentioning that all of the above have clear benefits to memecoins themselves, and it makes sense for memecoin teams to try to incentivize and partner with projects to integrate with their tokens.

Using memecoins as a GTM strategy has parallels to other web3 growth strategies involving tokens, including airdropping tokens to members of a particular community or users of a competing product. These tactics are made feasible by the open data of blockchains, which can be leveraged for granular targeting. This strategy can also be likened to tactics in the web2 world, from community-led growth, wherein brands cultivate their customer bases to increase word-of-mouth, to brand partnerships that cross-pollinate complementary user bases, like Lyft’s partnership with Delta. But whereas offchain partnerships are challenging to execute due to siloed data and systems, crypto enables permissionless integration, wherein any developer can build around a memecoin. There is also financial skin in the game among tokenholder communities to see the value of their tokens grow, potentially fostering even greater receptiveness to partner projects.

While many dismiss memecoin trading as gambling or a strange form of financial entertainment, their growing popularity and intense communities may mean that they become a viable part of GTM strategies. For users, the new development is that, as assets, memecoins allow anyone to invest in and own a piece of a GTM strategy, grassroots community, internet culture, and community currency.

What are other examples of memecoins as a GTM that come to mind? And what are your thoughts on this strategy? Comment below or reply!

The rise of scaled social platforms like Facebook, Instagram, and TikTok has made it increasingly challenging for newcomers to compete directly.

Per network effect theory, for any innovation a startup can create, an existing network can quickly imitate and distribute to its own scaled user base. This is evident in the fact that it’s been years since a new consumer social application has scaled, even though their product innovations have propagated across existing social giants (e.g. live audio rooms and ephemeral stories). As a result, startups have shifted their focus toward more intimate formats, where their smaller user bases give them an advantage over incumbents.

Simultaneously, consumer app success has become more transient, driven by accelerated news cycles and algorithmic feeds that constantly reshape users' attention. New consumer apps may burn bright for a few weeks or months, only to be replaced by a newer “it” social app. In a sense, consumer products now resemble entertainment, with users regularly wanting to try out the latest thing and then quickly moving on. I’ve been investing in consumer startups since 2016, and in that time I’ve amassed screens filled with social apps on my iPhone—BeReal, Poparazzi, Fam, and Dispo, to name a few. All were once popular but now are mostly forgotten.

As apps predicated on smaller use cases gain traction and start to scale, they can actually erode their core value proposition of intimacy, creating an opportunity for still-newer newcomers to take their place. Furthermore, the novelty of a new, narrow social experience quickly wears off before the app can iterate and expand, making it difficult to compete against incumbents that offer many more options and formats for social interaction.

In light of this, I sense that an alternative path to success in the realm of consumer apps lies beyond the well-worn model of building a “kitchen sink” social giant. An alternative, less obvious, and likely more fun route is to create a series of smaller, transient hits. Rather than building something that can one day scale to a billion users, the goal is to launch a series of quick-hit apps that capture attention fleetingly.

This concept mirrors the venture studio model: build and launch successive products that share operational resources such as user acquisition and personnel. In the casual gaming studio model, exemplified by Zynga, Supercell, et al., developers release numerous titles that share core gameplay elements but introduce incremental innovations for differentiated experiences. In the gaming context, fast-following with similar apps and cross-promoting between them becomes essential to retaining user attention and maximizing revenue.

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Crypto, through tokens, can turbocharge this formula

Crypto may not come immediately to mind with the venture studio model, but the use of tokens can help stitch together different experiences, transferring user attention between different app experiments.

Take, for example, NFT projects that employ successive drops or experiences to direct users to fresh products and generate revenue. Bored Ape Yacht Club's original 10,000 NFT collection, for instance, was followed by its Otherside metaverse, then Dookey Dash, an endless-runner game and skill-based NFT minting experience. This sequencing—as well as the attention the project captured and held from token-holders throughout—demonstrates the potential of leveraging tokens to overcome the cold-start challenge. Underlying the migration of attention is genuine interest from a user base that desires to see the ecosystem extended, as well as speculative interest in new projects, which is uniquely fueled by crypto.

Unlike the traditional gaming studio model, wherein developers must bootstrap their own user bases, tokens also enable more interoperability between different developers, allowing founders to create utility around another token and siphon off users from other applications. Vampire attacks are a canonical example of this, wherein developers use token incentives targeted at competitors’ users (via onchain data) to lure users to switch. More generally, the open data of blockchains can provide a foundation for projects to leverage tokens in creative ways to bootstrap attention, from Frame airdropping tokens to all users who paid royalties on NFTs to garner interest for a new NFT-focused L2, to Jenkins the Valet building and extending on existing IP ecosystems.

A more methodical, venture studio-esque model for crypto apps could be applied to several emerging categories:

Crypto mobile developers are increasingly deploying their applications as PWAs (progressive web apps), simple apps that work on mobile web and allow developers to bypass crypto restrictions on mobile app stores. While PWAs are easier to build and deploy, they’re clunky for users to install and discover. Tokens could help shift users between different PWAs and enable developers to capitalize on rapidly evolving trends in crypto. Rather than trying to acquire users from scratch for each PWA, developers can launch a series of PWAs united by a shared token.

This approach can also help capitalize on interest around a trending financial asset. For example, when the BONK memecoin started to gain steam in December 2023, the core team also launched BonkBot, a Telegram trading bot that rapidly grew to 70% of trading volume for the token. As memecoins (themselves a form of financial entertainment) proliferate, teams can continue to harvest and prolong that attention with new applications around that asset, like Telegram bots, gaming experiences, social apps, etc.

The benefits of building multiple app experiments

For founders, the benefit of following the venture studio strategy means more optionality than betting on one idea from the get-go. Creating a succession of apps still leaves open the option of building a big consumer app: if one of the bets takes off, the founder has the freedom to run with it. Beyond that, it’s a structure that can also offer more autonomy and creativity. Since the goal isn’t to build a monolithic giant that has mass appeal, each of the ideas can be more offbeat, interesting, and niche. 

To execute on this strategy successfully, founders should keep several considerations in mind. First, be disciplined with venture funding, acknowledging that success may come in the form of a base hit for one or several of the apps, rather than IPOing a monolithic social giant. Generating cash flow and being a self-sustaining business remains an option with this model, particularly in crypto, where there is potential for significant monetization even with smaller user bases. (For example, Friend.tech generated $53M in total fees from just 839K traders since its launch last August.) It’s also important to engage and retain users across drops—not only through a token, but also with content and community—to maximize chances of retaining users for each of the app experiments. And finally, quick execution and iteration is critical in this model, mirroring the transient attention cycle with new applications that appeal to existing users but are varied enough to keep them entertained. Of course, there are more complex considerations, too—like how much time to spend on each idea and how long to maintain each experiment—but those answers are more case-specific, informed by factors like app momentum, business considerations, and longer-term strategy.

In a landscape now dominated by scaled incumbents, a viable alternate route for consumer builders is to embrace the dynamics of fleeting attention, build for transience and niche use cases, and—uniquely enabled by crypto—deploy tokens for cross-promotion and growth.

If you’re thinking about pursuing this venture studio model for building consumer apps, I’d love to chat!

With thanks to Eugene Wei, Patrick Rivera, Willem Simons, and Variant team members Alana Levin, Mason Nystrom, and Jack Gorman for their feedback.

Recently, we hosted a fascinating discussion about loyalty and points programs at the Variant office. The conversation covered best practices from the web2 loyalty space and how they could be cross-pollinated to crypto; the distinction between points and tokens; what kind of rewards and redemption experiences users care about; and whether to put points onchain. Attendees included a mix of crypto founders across consumer, DeFi, and infrastructure; web2 loyalty experts who have designed programs for American Express, Delta, and other companies; and our Chief Legal Officer Jake Chervinsky.

Below, I'm sharing some of the takeaways from that conversation:

Points as a tool to move users up the loyalty ladder

Loyalty programs are ubiquitous in the offline and web2 worlds. Many companies spend millions on consultants to design them. Despite that, most programs are ineffective in engendering deeper loyalty. Best practices are still developing, leaving a lot of room for creativity and improvement. 

So, then, what's the point of a point?

• Points programs are the gamified manifestation of the first layer of Maslow's hierarchy of needs: physiological and safety needs. They reward the customer for their behaviors with tangible benefits, allowing the user to experience utilitarian and financial value. (credit to Anna Brian Lee for this framework!)

• Customers will continue engaging with a brand when they feel recognized, the second layer in Maslow's hierarchy. This is when they believe they are being treated differently from the next customer based on the series of behaviors they have demonstrated to the brand.

• True loyalty occurs when an emotional relationship is formed between brand and customer. This is the top layer of Maslow's pyramid: self-actualization. A customer feels a sense of psychological ownership with the brand, whereby the brand becomes intertwined with the user's identity.

Points program design

In a world where many crypto projects have points programs, the core product will be what matters most. Nonetheless, products should still take into account several factors when designing a program.

• Should points be targeted at user acquisition or retention? Most discussion participants agreed that in the web2/offline world, points were a more effective retention tool for existing customers; users don't use products simply for the existence of a points program (e.g. I don't switch my coffee shop just to collect points). However, in web3, behavior is skewed by users’ belief, whether justified or not, that points will eventually convert into tokens. For that reason, points have been extremely effective for user acquisition in crypto.

• Should points even be redeemable, or are gamification and status enough? Most agreed that for a program to sustain user interest, users must be able to redeem points for rewards.

• What types of rewards are enticing for users? Participants agreed that there should be a mix of easily redeemable rewards, which allow users to experience value from the program, as well as more aspirational or experiential ones that create memorable moments and emotional connections.

Differences and tradeoffs between points and tokens

Points programs are well-established for traditional companies, but the onchain world often relies on tokens, which can bring particular advantages.  

• The two main characteristics that distinguish “points” from “tokens” are that the latter are (1) onchain and (2) freely transferable.

  • Point values are determined by their creator based on what those points are worth in the creator’s closed ecosystem.

  • The value of tokens is determined by a secondary market based on what purchasers are willing to pay, which may or may not reflect their actual value in a loyalty program.

• A major benefit of turning points into tokens is composability, which allows many different companies to honor points in a single ecosystem and for there to be more partnerships and collaborations (for instance, earning Delta SkyMiles through riding with Lyft). Some suggested that there is true demand for this improvement and that the main reason it has not occurred in web2 is because of tech debt, which public blockchains resolve through easier composability of various programs.

Drawbacks of onchain points

Transitioning to an onchain points program may seem at first blush to be a straightforward decision. However, they can come with unique drawbacks, depending on their implementation.   

• Loyalty tokens might be less effective in incentivizing consumer behavior because of the confounding effect of speculation interfering with a company’s goals for the loyalty program.

• By reducing switching costs and creating the ability to exit through selling tokens, companies will not be able to achieve customer lock-in, which is critical to a loyalty program.

• Onchain points open up the surface area for competition by making it more transparent who a business's customers are (e.g. Uber could poach Lyft drivers and vice versa).

• Transferrable onchain points entail significant legal/regulatory concerns (see below). 

Legal and regulatory

Web3 founders seeking to incentivize consumer behavior with tokens have run into significant legal and regulatory challenges in recent years due to hostility from regulators like the U.S. Securities and Exchange Commission (“SEC”). Points programs offer an alternative mechanism to incentivize user behavior.

• Points programs may offer a way for web3 founders to acquire and retain users with less regulatory risk than tokens. For the same reasons that web2 loyalty points generally aren’t treated as securities under U.S. law, a well-designed web3 points program shouldn’t be subject to regulation by the SEC.

• Even if points programs have less regulatory risk than tokens, there are many other laws and regulations that apply and could create trouble for founders who don’t address them. Web2 points programs may be “overlawyered” at times, but they include critical terms, conditions, restrictions, and controls that are important for web3 points programs too.

• Points programs may provide more flexibility for founders considering a potential token distribution in the future. Distributing a token is often a “one-way door” decision — once done, it can’t be changed or walked back. Points programs give founders the ability to iterate, reflect, and analyze their strategy with the help of counsel before taking a step with significant legal and regulatory ramifications.

With thanks to Anna Brian Lee, Jake Chervinsky, Graeme Boy, Will Hunter, Laura Jaramillo, and Liz Yang for their insights and feedback.

Write anything - from your smallest paragraph to your grandest masterpiece - and publish it online or send it as email newsletters directly to your readers.

Your Paragraph publication is blazing-fast, SEO optimized, and combines the best parts of both web2 and web3 to help you create content and grow your community better than ever.

Getting started

What you're looking at right now is the Paragraph editor. We support markdown, callouts, code, and rich media embeds like Twitter and YouTube.

paragraph.xyz

@paragraph_xyz

On paragraph.xyz, all posts are stored on @ArweaveTeam. This means they're immutable, uncensorable, permanent, and composable

paragraph.xyz

Paragraph | all-in-one publishing & newsletter platform

Create, publish and share web3-native blogs & newsletters.

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7:12 PM • Aug 18, 2022

When you publish a post, you'll have the option of sending it as a newsletter or storing it in the permanent & uncensorable Arweave.

Helpful links

Here's a few helpful pointers to customize your publication & get the most out of Paragraph:

• Theming & customization. Change your publication's font & colors; truly make this space your own.

• Set up a welcome email. This is the email your readers receive when they subscribe to your newsletter.

• Configure your publication's settings. Add links to your homepage, set up a custom domain, configure Google Analytics & more.

Need help or have feedback?

We've put together some documentation here, but if you still have questions you'd like answered we’d love to hear from you.

You can reach us via email at hello@paragraph.xyz or subscribe to our newsletter here. We're also pretty active on Discord.