Digital asset startups are reportedly turning to loyalty points programs as a means to attract and retain users.
While the points programs have garnered attention and investment, there are concerns about their lack of transparency and potential regulatory risks, Bloomberg reported Thursday (Feb. 8).
Token airdrops, which involved distributing cryptocurrency tokens to users, were once a popular marketing strategy for digital asset startups, according to the report. However, many airdrops failed to retain users, and regulatory scrutiny over token distribution has increased.
In response, digital asset startups have begun implementing loyalty points programs to incentivize user engagement, the report said.
In November, the blockchain project Blast introduced a loyalty points program that rewarded users with points, per the report. Despite not having a live blockchain, Blast managed to attract over $1.3 billion worth of crypto from users. While the lack of clarity regarding the redemption and use of these points has led to criticism, Blast’s success has inspired other blockchain projects like Manta and Mantle to launch their own loyalty points programs.
This shift represents a new approach to product, strategy and marketing in the crypto space, Christopher Newhouse, an analyst at digital asset venture fund Cumberland Labs, said in the report. Startups are exploring ways to gamify their protocols and attract a wider user base.
However, these loyalty points programs in the world of digital assets face challenges regarding transparency and regulatory risks, according to the report. Many loyalty points programs have not clearly defined how the points can be used, leading to speculation among users. Additionally, the regulatory classification of loyalty points remains uncertain, with potential implications for compliance with securities laws.
Unlike tokens, loyalty points are not recorded on the blockchain, making them less transparent and harder to evaluate in terms of market size, the report said. Tokens convey ownership and can operate on decentralized systems, while points are under the exclusive control of the issuer and can be revoked or have their value changed at any time.
Crypto.com saw the price of its cronos (CRO) exchange token drop 22% in a day in 2022 when it when it announced that it was cutting the rewards offered in its loyalty program.