Whats The Point Of Points? The Next Phase of Airdrops

bankless Nation welcome to bankless takes we want to give you our takes on points David what are points what is the point of points what are we covering today's episode oh we're covering points this brand new innovation uh where we are issuing tokens on centralized databases and it's this cool new thing that we're doing in this crypto world where we are just reverting back to servers to issue uh numbers that are on your screen and is sweeping the crypto world and everyone's doing it everyone's

getting in on the points game uh everyone's earning points everyone's issuing points points are just flying all over the place do we know how many points there are no do we know what the total Supply is no do we know what the monetary policy of these things are absolutely not but everyone loves them for some reason even though they are completely backwards to everything that we stand for in crypto so what the hell is going on what how did we find ourselves here will these points actually turn into tokens what will the Reg ulators say about it overall what's

our take on points David I I got to admit as we get into this episode they just sound like worst tokens to me okay not even wor just the worst possible form of a token yeah and while we're discussing all of these different points Ryan I know you're a big Diablo I fan do you remember uh Diablo I ultima's ultimate strategy guide yeah for Di that a book that was a book it was a big it was a big book and it taught you how to play the game and how like told you how to advance through the levels like what you do when you get to this phase of the

game uh so this is what we are building at the banlist airdrop Hunter AKA The bankless Point score system yes and so it teaches you how to score all the points in the games that you play walkthroughs they're walkthroughs it's a walkthrough platform to help you score more points uh so depending on whatever game you're playing maybe you're playing the swell game maybe you're playing the eclipse game the rainbow game the bankless airdrop Hunter is AKA Point score platform is the place where you go so you can learn how to score more points uh in this crazy world of crypto

uh there is a link in the show notes there it's also I think this will be the last episode that we ever uh make this code valid podcast 24 will give you 10% off of the bank list Point score platform aka the airdrop Hunter as well as everything else about Bank list citizenship including the AdFree RSS feed and including the bankless Meetup at eth Denver which me and the rest of the bankless team except for Ryan uh will be at uh if you guys want to go hang out at e Denver podcast 24 to join up and become a bankler citizen go get

those points guys all right David let's start at the foundation here what are points here's a fantastic tweet thread from John Woo that goes into the details of this what are we looking at so this uh tweet thread was I thought just fantastically emblematic exactly what we need to understand points John Wu at Aztec goes points are a new incentive primitive that significantly increas the scalability and utility of erc20 tokens and will be the key innovation of this bull market you can think of points as offchain derivatives points essentially contain the right but not the obligation

to redeem for underlying ERC 20s at a future date points rely on highly performant offchain databases called servers to store and verify individual that's why you're smiling this is kind of tongue and cheek it's this is this a little satire is it's a little satire while servers require slightly higher trust assumptions they are approximately 100 million times more performant than the ethereum layer one network servers can be utilized to create redundancy andove data guarantees meaning points are scalable so how do you earn points

points are typically earned through onchain actions through wallets like rainbow and layer twos like blast but they can also be assigned for non-blockchain use cases imagine a payments card that rewards users in points that can later be redeemed for flights hotels or even meals I've seen those before I think you get where we're going with this here right yeah yeah so John Woo's take it was not a take it's basically just saying pulling the mask out of these points things it's like yeah we're increasing numbers on a

centralized digital uh Ledger called a database uh and it is the same thing that we've always had this is how your Wells Fargo bucks work this is how your Airlines mile Works uh and this is how your credit card points works and now it's also how your crypto protocols work too uh and so it's a little bit uh backwards it seems uh yet everyone is super stoked about it uh and so so I get that that primarily these are being deployed in kind of like a centralized database right now so these are not being deployed like tokens have been

deployed as ERC 20s okay and so in that way it's very similar to like airline miles or or hotel points or that sort of thing but like J John's um like use case for this is incentive incentivizing consumer loyalty that makes sense mining user Behavior data and even scoring and ranking post forms but also in in his second tweet he says this points essentially contain the right but not the obligation to redeem for underlying e20s in the future so he calls this like uh an offchain derivative it's like this

is one thing that I think you're getting potentially in the crypto points world that you're not getting in the airlines World which is people are expecting this to be redeemable for tokens at some point in the future it's like uh an option for something in the future importantly that opt option is a right held by the point issuer not the point collector so it's an option for the defi protocol the the crypto protocol to issue a future token not for the users or collectors of said points to be able

to redeem that into a token that is an option retained by the developers which I actually think is a very important Point uh about uh points um because it's um is a protective shield around these point issuers point I don't mean if if issuers not even the right the right term I think issue is more of like a legal nation state Securities context uh point point uh I don't know pointers the scoreboard uh whoever is issuing points uh gets to have control as to whether or not they turn this into a token or not

okay so this doesn't yet answer the question of of why are we doing that which I we I hope we can get to but I wanted to pull an analog from kind of the the real world here David because I think most people listening will uh know about points kind of the real world we've been talking about airline miles there I came across this website on nerd wallet and it's a blog post about how much airline miles are actually worth which I found somewhat interesting it's like on a secondary Market let's say you could sell your airline miles how much would they be worth so uh I I use a lot

of American Airlines so I've I've had like air miles over the years there uh American Airlines points would be about 1.7 cents per Point okay that's what that's what this website kind of like values use those those Point systems as right so I went in my American Airlines account I had about 3,000 or so points so you multiply that Airline points you multiply that by you know 17 cents and you get about 51 bucks I've never actually gone through that exercise but like there is a value of points in kind

of the analog uh Trad points world let's call it and you can also this is interesting you can actually buy airline miles I don't know if you know this but uh I went through the American Airlines like website and I could buy airline miles about 3,000 airline miles for like double the cost so it would cost me like uh $50 to buy like the $50 worth of points that I actually had and also interestingly David there's actually a place where you can resell your points I don't if you knew this way Airline

points you can resell Airline points like I haven't researched this I just kind of like you know typed in Google and found a site this is Miles buyer.com okay miles buyer.com wow yeah and what they will do is if you have excess points you basically it's it's so um wow it's so non-automated all right like you fill out your name email address how many points you have you talk to a customer service representative it's like the most inefficient form of like secondary Market that I can conceive of it's so old school all right but like you can actually sell points in like you

know uh 25k Point increments and and higher at least like American Airlines and is this legal is this legal well they have in their FAQ they said yeah it's Al well they say it's not illegal apparently EX for Utah appar apparently it's illegal in Utah yeah yeah so there are really crappy secondary um markets apparently for your your points your airline points and that's kind of the extent of it the spread between the buys and sells of Airline points has to be absolutely massive I'm sure it is

terribly inent terribly a liquid market right but like I mean you've had points in the past right you credit card points and you know what always happens with credit card they get diluted right because I'll just call it the issuer the issuer can just do whatever the f they want with it there's like no secondary Market no one's like there's no monetary policy there's no kind of like no insurances I put this tweet this other the last week where points are just tokens going through their Fiat era they're just they're just Fiat points like Fiat tokens excuse me there's like points there's like there's no Assurance

of monetary Supply there's no uh protection against dilution you could just add a zero to airline miles airline miles have been inflating for decades right so I I think probably to listeners it's going to sound like we are we are slamming points up to this up to this uh like point in time but I think we've got a more nuanced take that we'll get to you near the end but David could you just explain how crypto projects like what the meta is how crypto projects when did when did this whole points um like Trend start and uh like how how has it gone on in real world projects here I

I think points maybe points came before before frch but frch was I think the project that really put points on the map uh and friend Tech of course it was the app where we could buy and sell shares of our friends and every single week everyone would get their points distributed to them in their wallet or their wallet their um their friend Tech wallet but it was just like a points tab it wasn't a token and you just saw your FR Tech points go up and people started to speculate about what activities inside of friend Tech would make more

points and so there was like these all these tweet threaders and these like blackbox and investigators about like okay what what how are points distributed how are they allocated like how do we measure this thing and it turns out that there are certain behaviors that friend Tech was trying to incentivize one of them was just tvl just like how much eth did you have in people's shares and if you had more share market cap more share net worth you would get more points uh and people started to speculate on this uh and it was in the airdrop tab of friend Tech

and so I and and so people just like oh yeah there's points inside of the this airdrop tab clearly these points are just going to become tokens it was a very easy conclusion to make so it's kind of like a wink wink points yeah points points they're points yeah mhm uh so far there have been 90 million points distributed in friendtech I think of all Point issuer Distributors frch has been like some of the most transparent um and we all all saw the absolute explosion that was frch like not exclusively on

the back of points but there was a a very amount a very strong amount of like speculation about the airdrop that everyone wanted to get so everyone started to hop into friend tech people were also making money this is not to say anything about like the fundamentals of the friend Tech app itself which also incentivized its own behavior and attracted attracted people and also people came for the points uh and so this really just kind of set in The Meta um in the first two months of frch for example there was $412 million of trading volume and then 126 millon

million doll of trading volume over the next three and a half months um and so the point system is still alive in frch people are still kind of going after that but the thing is is that they set in a meta and now many other people have also started to play in the points game blur introduced a point system when it debuted in a October of 2022 oh so that's actually even before ftech um yeah so the point points have been around for a while like I don't even know when the Inception points were and the blur Pro program and was about

create issuing points for Behavior so season 1 had a particular goal uh and you would earn points if you shared a blur referral link and that was season one season two they changed why points were to be issued uh they focus on trading and loyalty so if you were a Trader on blur you bid or you listed or you lent on uh on blend then you got points you also got loyalty points if you listed your nfts on blur and nowhere else so if you had a wallet that was not listing nfts on openc but you were

listing nfts on blur you got loyalty points uh and then season season 3 of blur focus on more trading activity so uh more points for Lending than bidding uh listing Blue Chips loyalty scores can decrease if users listed elsewhere and so really the tldr is that like blur issued points if users gave the protocol blur what it wanted and what it wanted was you know determined by its okay so there there's a few I want to come back to blur in a in a moment but

like zooming out for a minute there's kind of like this this feeling right now just like oh better pay attention to points because this is how you're going to make generational wealth this bull market right okay the new thing is is points and uh there was a block article that came out that said there have been 40 billion points for crypto projects so far when will it end billion points well but like what's the value of those points we have no idea because they're all basic they're not ERC 20s they're all basically being deployed on centralized databases right so we're

we're kind of reserving a token for like it's public and it's an erc20 and right now you can verify the supply you can verify who owns what it it's an internal database uh you like entry right now now but there is precedent you mentioned blur being one of the first ones right of course friend Tech maybe popularized it more and sort of solidified it as a narrative but blur was one of the first the big question in my mind is is there precedent for this assumption the reason people are going points crazy is not because they just want to like I don't know rise up the scoreboard and like use the app more but like the reason is some

expectation that there will be an actual token airdrop and that points will be sort of a Cil resistant way to reward users with that more valuable or like nonzero valuable uh token airdrop that comes later and the question I have for you David is did blur do that like is there any precedent for that cuz I I think they did right 100% there there was two blur air drops uh after season 1 $414 million of blur tokens were distributed towards Point holders prata

uh and then season two $185 million also at that time I think that's the big one the big um uh Boom Big Bang of points that where points turned into tokens and it was all pretty explicit like everyone felt very secure that their points would eventually turn into an airdrop a token with blur um jeto was the second one uh so distributed 540 million uh jeto points uh which was worth it turned into $225 million doar uh for airdrop

participants I actually didn't even know that jeto had a points program until I was looking at the notes for this episode um and it was right under everyone's noses is the thing is like gto's issuing points like and then also people were surprised by the goto airdrop and then the reasoning as to like why people were surprised by the jto air drop even though they had a points program is well because everyone has a points program now and so like we have two examples of points turning into tokens and we have like 200 examples of people issuing points including like you

know just wallets are issuing points and people are all kind of skeptical like well how do wallets turn into tokens like will they turn into tokens like we don't know for sure but there is some precedent and I I guess this is where I want to you know talk about some of the Ben benefits of points maybe um for for some of these projects uh for sure it's it's um rewarding behav that they want to incent right and like it's it seems like even for users oh this is a nice precursor to getting a token airdrop at at some point in the future right and

what's great about this is we've been looking for like a Cil resistant way to like reward usage of a protocol actual usage of a protocol and this gives us another lever to like create that right of course people are are on uh points um like farming Journeys right now and there's kind of like some illegitimate uh activity around that and breaking of civil resistance but it gives us another step before we issue a token to kind of analyze that data and see what the patterns are and hopefully reward real

humans for actual activity that you want to see as part of your protocol so in that way it's kind of a benefit and uh for protocols in general like the growth has worked there's the example of margin fi who they introduced points in July and within two months the tvl for margin F was up 7X so to $21 million so it's like as AOW three million to $21 million so like this was in the the the worst of the salana bare market like no one was paying attention to salana the amount of

capital in salana was Zero uh and going from 3 million to 21 million to actually like a decent decent job and then eventually after the goo drop people went from it went from 20 to 400 million uh because people realized that points were real and spe specifically there was a repricing of the value of points on salana after the Cheeto drop I think the the big just outside success story is the is Blur by far uh in addition to all of the strong fundamentals and and just like the the value of the blur application the the leveraging of

gamification and incentives using points allowed blur to go from like 0% market share to it's like 70% market share eating into most of Open Seas market share from like October of 2022 to April of 2023 so like in three quarters just like absolutely eating up Open Seas market share yeah there's some Game Theory here like the thing with points is going to beat the thing without points right yes yes and so that's what we're seeing in the data yeah and granted like again blur also answered to a particular population of nft traders

who were the you know the population that actually stuck around in the bare market so it's not just points but I think it also kind of shows that like if you're a Founder whose head is in the game and your eyes are on the ball you are seeing the points meta develop and and your hand is a little bit forced it's like well everyone is issuing points and the thing is since they're not tokens since they're not Financial assets they are just numbers on a database Founders have a decent amount of like Security in issuing these

penciled in supply of not tokens because if they F something up if something's unfair if their Community doesn't like it they can just go change it because their points it's on a database it's on their database that have control over and so everyone is feels very legally protected and also like protected from Community pushback about like what would have been an airdrop that needed to be better well you know you can always just make it better because it's points you can just like oh you guys are unhappy with this distribution like let me

Tinker with this a little bit and all of a sudden the distribution is better and so no no duh that everyone's issuing points it's free to issue points and there's no obligation so I I want to talk to you about this question what do lawyers ERS think about points what does Gary Gensler what does the SEC think about points is this just a reaction to regulatory pressures we'll talk about that and also I want to get kind of your concluding take on points is it net good is it net bad for crypto what are the puts and takes of this but before we do we want to thank the sponsors that made

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companies like protocol Labs dydx Foundation Mina foundation and many more you can learn more about how toku can help you streamline your token management and get started for free visit toku at tok.com bankless or click the link in the description below all right David let's turn it over to the lawyers and see what they think about points and The Wider context is why are we doing all of this right we talked about some of the benefits Cil resistance but like we could do some of that with with tokens why have we kind of shifted to uh points rather than tokens I think there there might be a legal reason for this we've got an

article up that explains this what what what's the take here yeah this article title is why dii protocols love to offer points before air drops and I think if you're being following along in the crypto cycle for like you know even like just a year now you can definitely understand why the points meta has emerged in addition to there are some like I would say strong just benefits of issuing points before tokens for projects and Founders in a vacuum as in without external influences and I kind of named them like the temporary nature

of it it's like um it's like a you know it's a pencil before a pen you know you get to innovate and experiment and Tinker before you actually something inal it's exactly right it's the test net for a token it's they're token test Nets U which I think is great and very useful as a tool and I think probably the bigger reason is that issuing an airdrop is politically dubious uh uh legally dubious excuse me uh politically in favor in the crypto World legally scary uh and in the US specific at least

in the UN in the United States right and so what have we done because you know people in crypto want tokens we like tokens we love playing with tokens tokens are fun uh they come in all sorts of shapes and colors and sizes we like to pick our favorites uh we like to watch them go up and down in price we like to mainly watch them go up in price but mainly we like to get more tokens uh and this is something that we haven't been able to do nearly as much because of the SEC because of Securities regulations and this is I would say a

thing issuing and creating tokens is not just like a feature of the crypto space I would call it something that's like at the core of like touching the metal of what it means to be in crypto we are removing the permissions of creating Financial assets from Wall Street and from The Regulators and we are we have a printing press for financial assets we can make any sort of financial asset we ever want we can we can mint fake tokens that we are just going to throw away to the burner wallet we can make tokens that are named after our dog or we can

take a token and make it a cash flow asset from a crypto protocol we can do whatever we want this is our superpower uh this is the thing that Regulators don't like and so I think as a reaction to the heavy-handedness of the SEC being scared out of paying millions and millions of dollars of legal fees and then also still potentially having to pay tens of million dollars of court cases developers like especially United States based developers are just issuing points instead and kind of as like a

Sandbox like a test net it's like well we're definitely going to issue a token we don't know how we don't know when but we've learned that if we issue points instead we get the benefits of issuing tokens but without actually doing that so we get tvl we get new users we get activity we get trading volume uh everyone else is doing it everyone's doing it uh and so we're going to do it too and it is a layer of protection because no one is actually issuing a financial asset at least that's what the meta is currently uh and so I I think

lawyers are probably even more happy to ISS have their Founders their protocols issue points over tokens specifically maybe not points in a vacuum maybe that's worth asking about so a particular co-founder of a defi app in this one article that we're saying says for a certain set of teams that are risk averse or in highly regulated jurisdictions points are a way for them to sort of engage in marketing activity prior to having regulatory Clarity in order to issue a token your legal council has to sign off on it and there's different opinions from different legal councils while they're

still figuring that out points offer them the ability to engage the market and you know get users add liquidity into their systems without having to issue a token exactly what we were just saying yeah I was as you were talking through that David I was just picturing in my my head you remember when uh Richie Torres asked uh Gary Gensler is Pokemon cards for security right I have that same I have the same image I know exactly where you're dude for every single asset class that we are kind of tokenizing it's going to be the same sort of discussion I can I can picture Richie Torres asking Gary Gensler are Airlines

miles a security Gary Gensler during the next cycle as there's some conversation and Gary tries to make points uh like definitively a security right it's like we're going to have this debate for every single thing that we want to tokenize because some Regulators going to say tokenization nope that's mine that's my area that's my jurisdiction I want to regulate that what do you think the odds are that Gary gendler and the SEC goes after some crypto protocol for issuing points I think it's a lot harder

to do that I think it's I think it's a lot harder to do that I think they still will oh I think they very well could right it's just like they'll they'll try to argue that points are just a stepping stone to these Securities Gateway security gateway drug exactly but but like the further steps remve the the more and more like I think specious their arguments will become and I would love for them to kind of defend that point I can love I would love to see Gary Gensler try to say points or security I would love for him to say that well well you're you're using it to speculate well like I mean I could

speculate on an airline miles if I want shitty speculation but I could go do that and apparently it's not a legal to go trade in separate uh except in Utah uh in like secondaries right so there there's there's a market for that so I I think that um if we're if we're talking about this from a you know crypto you know founder perspective and you're a crypto project ask ask Americans like there's been enough airdrops that it's just like you can't receive them because you're located in the US right so like sorry you don't get the air drop American listers would you rather have

points or nothing because that's kind of like where we are right now and I think the answer for for most crypto users is okay give me points that feels good now now hopefully it's kind of like there's some social commitment there and hopefully these projects honor that in some way like there is a big bet that these points will become valuable uh over time as proxies for tokens or as some sort of like for some sort of utility inside of the ecosystem itself but that's not guaranteed and so we

might get and we are going to get ahead of our skis on this there will be some major disappointments I think in the points uh you know landscape because points don't have all of the guarantees that tokens do do they David in fact they have zero guarantees they have zero investor protections tokens already have pretty poor investor protections and points have absolutely zero but this is go back to what we were saying at the beginning points are a right to issue a token but not an obligation to issue a token by the point issuing teams not by

users so users are going to be subject to the choice of a point issuer about whether they want to uh elect to have that right exercised to issue a token off the backx of points and this is a shift in power towards development teams uh it's a choice that they have and it's protection for them which I think is good like let's protect developers over like if we have to choose between these two parties let's protect developers over users because the developers are the ones building the things in the first place that the users are using and

so they need to be legally protected the most because they're the thing they're the people building this whole thing what do you think about that I yeah like let me let me give my take I I think like you could say it's good but like I would I would more um frame it as kind of a trade-off because there's there's good parts about it and there's bad parts about it I mean if I'm talking about kind of the the bad parts um I I put out this uh kind of long tweet that basically said what's happening is uh the SEC and Congress through inaction are basically boiling the actual utility out of tokens and they're leaving all of

the speculation this is a point that Chris Dixon made on our episode earlier this week David he's just like here's what's so asinine about our current regulatory environment in the US is like they are making it such that all we get is useless futility tokens right useless governance tokens all we get are meme tokens like all we get as investors inside of this ecosystem of crypto projects are like points right what we actually want are tokens that have some

sort of governance guarantee that have some right to treas tokens that look a bit more like equities they have cash flows that you can realize on chain and the the Insidious trap here like I the bare case for this for for points is basically they are trying to wall off all of our tokens and make them like shitty and then they go and they go and they complain about the crypto casino right and they're like it's just speculation it's just a casino and we're looking and it's like yeah you forced us