Community building is critical to the success of Web3 projects, and one of the best ways to do this is by offering incentives for users who engage with them, essentially rewarding participation.
Token drops can be an effective tool at enticing people to look at what new crypto projects have to offer, but in some cases they can do more harm than good, with the allure of quick and free gains attracting “mercenaries” who are motivated only by the potential of profit. Such users have no interest in the project’s long-term vision or utility. For them, the only goal is to accumulate as many tokens as they can, then sell them at the first opportunity.
Mercenaries Only Serve Themselves
Mercenary behavior undermines crypto projects in several ways. Their actions often result in significant sell pressure on native tokens, impacting prices and harming genuine long-term investors. This can have negative consequences for the project’s growth, as many are reliant on their treasuries to fund their ongoing development. If the price of the token depreciates, that means less funds are available for the developers.
Token farming also inflates user statistics. A project might think it has thousands of users participating in its rewards campaign, but the reality is that most of the engagement is superficial, with only a handful of active users who actually believe in its goals.
Sometimes, mercenaries become so dominant that they’re like a plague that infects the project’s community, with Discord and Telegram forum discussions focused purely on initiatives that can generate more rewards or “pump” the token’s value. Meanwhile, technical discussions about new features and strategic partnerships get pushed aside, creating a fragile and speculative environment that unravels when market dynamics shift. Ultimately, mercenaries will abandon projects when they think there’s no more value left to squeeze out of them.
Token incentives do have their place in the crypto industry, and they can be powerful tools for bootstrapping new communities, but only if they’re designed in such a way that rewards genuine users who are truly engaged with the project. And that is precisely where the new challenge lies.
Reward Continuous Engagement
Fortunately, developers have a number of successful models they can follow to ensure that their token drops attract the right kind of users – people who actually believe in their project and intend to make full use of the applications and services they provide. These are the kinds of users projects need, as they’re much more likely to stick around and help it to grow.
The Layer-3 protocol Orbs has come up with an enticing approach that aims to incentivize much deeper participation in its ecosystem, offering continuous rewards for anyone who commits to long-term engagement. Its model combines crypto activities such as staking, delegation and active participation with its network operations and governance discussions, and ensures that the bulk of its rewards go to those who are committed to the project’s growth.
Orbs has created a unique consensus mechanism, where network transactions and governance processes are facilitated by a group of 17 “Guardians”, who are heavily invested in the project and possess the required expertise to engage in serious discussions about its technicalities and long-term roadmap. Orbs’ Guardians primarily serve as validators, processing network transactions in return for rewards, and to do this they must “stake” a significant amount of ORBS tokens. To increase their earnings, they must also strive to attract delegates – essentially, other users – who back them with their own ORBS tokens in return for a share of the rewards they generate.
Guardians also take care of Orbs’ governance, making proposals about the future of the project, engaging in discussions around them and then voting on whether or not to implement the ideas. Each Guardian’s voting power correlates directly with the number of delegates they’ve been able to attract. So the vote of a Guardian with over a million delegates will carry a lot more weight than the vote of one who has only been able to attract 100,000. It’s a unique governance model that aims to solve the challenge of voter apathy, which can paralyze collective decision-making in other projects.
Orbs’ model has proven to be effective, encouraging users to become long-term stakeholders and foster an environment that rewards genuine loyalty and commitment, while shunning transient mercenaries who only exist to extract value. The model transforms users into contributors, creating a highly engaged and resilient community that has helped Orbs to cement its place as the leading provider of Layer-3 blockchain infrastructure.
Focus On Real Value
Other models have shown themselves to be equally effective. While Orbs is focused on rewarding those who participate in network activity and governance through staking and delegation, Lens Protocol has created a novel system based on “social capital”, where users are rewarded for their contribution and impact on the community.
To understand how this works, we need to understand what Lens is. It’s building a decentralized social graph as the foundation of community-owned social media networks that generate value for their users. With Lens, creators own and control the social media content they create by minting it as non-fungible tokens, or NFTs. Through this system, users earn rewards for creating and curating content, building audiences and fostering social engagement.
More specifically, Lens employs a “collect” mechanism that makes it possible for creators to monetize their content by charging tokens for users to access it. Meanwhile, its social graph helps users to build a digital identity and grow their reputations within the community, providing visibility into their connections and audiences. In Lens’ system, the incentives are less about collecting tokens for performing simple actions – something that can be largely automated by bots – and more about creating a reputation, which takes real dedication and hard work and can be highly rewarding.
We can also consider the example of Optimism, a Layer-2 scaling network for Ethereum that’s pioneering a retroactive public goods model. Unlike traditional token drops, where rewards are pre-allocated for user’s future participation, it instead doles out tokens to users who can demonstrate that their historic interactions have had a positive impact on the project.
Optimism’s model recognizes that “public goods”, which are defined as infrastructure, open-source tools and educational resources, generate most of their value after the fact, rather than at the time they’re created. Through a process of nominating users and voting, Optimism’s community determines how many rewards should be distributed to those who have succeeded in creating real value for the project through their earlier efforts. This ensures contributors are focused on creating or doing something that generates real value, rather than spending time farming for free tokens.
Creative Incentives Still Pay Off
Airdrops and other token incentives are still an excellent way to foster community growth, but only if they’re designed in such a way that they can deter mercenaries who have no real interest in the project. That’s why projects need to come up with more creative ways to incentivize participation. Doling out tokens to users who just go through the motions, signing up, conducting aimless transactions among themselves and inviting friends, simply doesn’t cut it anymore.
The key is to incentivize those activities that really do generate value. With their distinct mechanisms, Orbs, Lens and Optimism demonstrate how more nuanced and sophisticated rewards programs can create real engagement in their communities, driving sustainable, long-term growth
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
