Now that NFTs have proven their usefulness in what has been a very tough year, the next phase is coming
It may not feel like it, but crypto has reached another tipping point. The next growth spurt in crypto will come from tokens supporting loyalty programs that motivate community engagement rather than revenue-generating protocols. NFTs will serve as the foundation for these loyalty programs, which companies like Starbucks, Disney and Adidas have already launched.
Other novel crypto-native examples include Rally, a platform that allows individual creators to issue NFTs. One person, “Alex,” actually “sold himself” on the blockchain with Rally, where he allowed NFT holders to vote on how he would go about his day.
Using tokens to support loyalty programs will drive mass adoption of crypto as it is an offering that offers tangible value to consumers. Instead of providing their data or eyeballs, crypto loyalty tokens give users something real that brings them immediate value.
Blockchains are about community, not code
The fascinating thing is that loyalty programs are an expression of crypto’s fundamental value – community. The challenge is that the number of competing blockchains and platforms in crypto is so high that it’s easy for users to abandon ship when the monetary reward is greater elsewhere. We have seen this in DeFi with the practice of “yield farming”.
The loyalty token model
To mitigate this problem, we need a loyalty token model to encourage long-term engagement on any platform. One approach we’ve seen is “token-gated communities” like Friends With Benefits, where users must purchase tokens to gain access to a walled digital community.
Token-gated communities are stretching beyond the crypto space, Friends With Benefits, for example, is partnering with Hennessy for an Art Basel 2022 NFT launch that includes access to an exclusive party if you hold one of 1765 NFTs.
However, this approach simply restores the old centralized paradigms of artificial exclusivity. DAOs hold more promise as users are rewarded for sweat capital, not just for buying access. CabinDAO is an example of a DAO where members literally “sweat” (by helping build cabins) in exchange for tokens.
But these are both crypto-native uses of loyalty tokens. As non-crypto-native communities adopt crypto-powered incentives, we see the potential for true mass scaling. Ecommerce is a great example of how NFTs, which unlock better deals or access to exclusive products, can drive deeper customer loyalty than the existing “points” models.
Real-world use cases for loyalty tokens
According to a Deloitte report, “Blockchain is an ideal cure for what ails loyalty reward programs.” The main complaints from customers are the long delays in delivering rewards points and the opaque and difficult-to-redeem benefits they offer.
Travala’s “Smart” program grants users tiered rewards, including up to 13 percent off travel in exchange for locking “AVA” tokens for a limited time. They have also issued a “Travel Tiger” NFT, which gives holders additional perks when booking through their platform.
Trust is not about forcing people to behave the way you (or the Founder) want them to behave; It’s about freeing people to behave the way they want to behave, and you can be okay with that.
The key point here is that rewards are timely distributed to a user controlled wallet and they can buy and sell their Travel Tiger NFT on OpenSea at any time – a sharp contrast to the clunky models used in the past. The program has been very successful with over 1000 ETH in trading volume on OpenSea.
Crypto.com follows a similar model to Travala, where users who lock in tiered amounts of “CRO” tokens receive discounts on fees and a credit card with up to five percent cashback on all purchases. As with Travala, these rewards are timely accessible in a user-controlled wallet.
- Binance’s “launchpool” where users freeze BNB or other tokens to earn staking rewards for participating in new token launches.
- Kusama’s “Can You Spot Me?” Game that allows users to “hide” KSM tokens in plain sight and earn rewards when others find them.
- Polkadot’s Stake DOTs to Earn Tickets campaign, which allows users to earn tickets to win prizes such as Ledger Nano S hardware wallets.
creative potential
These are all great examples of how crypto-powered loyalty programs can drive adoption by providing immediate value to users. But they also serve as a powerful retention tool by making it more expensive for users to leave the company.
Loyalty tokens align with a broader notion of what “trust” — an overused word in crypto — actually means. Trust isn’t about forcing people to behave the way you (or the founder) want them to; It’s about freeing people to behave the way they want to behave, and you can be okay with that.
This is what unlocks crypto and loyalty tokens have the potential to facilitate it: not to force people into narrow valleys of constrained behavior, but to unleash their creative and industrial potential to realize the greatest possible collective.
Huy Nguyen is a Vietnamese blockchain technology entrepreneur and co-founder of KardiaChain, an interoperable blockchain infrastructure provider.
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