This was first published as a Twitter thread.

I predict that in the future, consumer token airdrops will resemble web2 incentive programs: largely used to engage and incentivize users who already have product-market fit and intrinsic interest to use a product, rather than to acquire new users.

Tokens today by and large get airdropped retroactively to past users, creating an incentive for users to game the system in anticipation of a future token. 

Non-users become users for the sake of the anticipated airdrop, leading to churn and sell pressure due to lack of PMF (especially when the token is not critical to the ongoing product experience).

Consumer tokens should take inspiration from web2 incentive programs, which utilize rewards to convert already-existing users into power users, honing in on the segment of users who already have PMF, but need an extra nudge to deepen their retention.

What does that look like?

Various social media platforms have launched creator funds to pay creators on their platforms (e.g., TikTok paying $1bn over 3 years). Notably, these programs don’t pay everyone who creates, but reward those who drive meaningful views & engagement. Eligibility for the TikTok Creator Fund includes having 10K followers and 100K+ video views – criteria that indicate pre-existing PMF and retention. The monetary incentives are an added mechanism to boost retention.

Another example is Uber’s new driver guarantees. Instead of being an instant cash bonus for just signing up, it’s structured as guaranteed minimum earnings if drivers do a certain # of rides within 30 days (usually $500-$1.5K). It’s a safety net for earnings based on certain driver behaviors – those correlated with long-term retention. Beyond that, they’re targeted to balance marketplace dynamics on a micro level, varying by geography.

These examples honed in on the segment of users who already are engaging with the product out of intrinsic interest, and give them an extra incentive to activate and become power users. Beyond that, they are iterated, personalized, and continuously updated to fine-tune marketplace dynamics.

How does that translate to crypto? In theory, tokens could be used in place of the above cash rewards, and to greater effect, since they represent ownership and can further drive alignment between users and the network. Instead of distributing tokens as a one-time event, they can be dripped out over time based on completion of certain tasks which indicate pre-existing PMF.

The availability of data onchain can also make token incentives much more powerful because the users who are on the cusp of being more highly engaged are those who are also using competitive products, data for which is more readily available.

Teams seeking to create much more sophisticated token distributions can learn from web2 companies that effectively leverage rewards systems to level up users’ retention. It’s not a simple snapshot and one-size-fits-all distribution: designing such programs requires an understanding of user lifetime value, drivers of activation, behaviors that drive long-term retention, etc. – and targeting segments of users that are already finding value from your product but could use an extra push. 

I’d love to hear your thoughts! What can tokens do better in driving LTV and retention? What other incentive programs should be taken as inspiration?  

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