Points are a liability. They are a centralized IOU that creates accounting overhead and customer distrust, as seen in the airline and retail sectors.
e-commerce-and-crypto-payments-future
Blog
The Future of Customer Loyalty: Staking, Not Points
Legacy loyalty points are a broken, extractive model. This analysis argues for on-chain staking mechanisms that offer real yield, composability, and superior economic alignment between merchants and customers.
introduction
THE STAKE
Introduction
Loyalty programs are shifting from opaque points to transparent, on-chain staking mechanisms that create real economic alignment.
Staking is an asset. Users lock capital (e.g., ETH, stablecoins, protocol tokens) to receive program benefits, creating skin-in-the-game alignment between the brand and the customer.
The model flips incentives. Traditional points reward consumption; on-chain staking, like Aerodrome's vote-locking or Loyalty+ by Ethena, rewards long-term commitment and governance participation.
Evidence: Protocols with veTokenomics, such as Curve Finance and Aerodrome, demonstrate that staked capital directly correlates with higher user retention and protocol revenue.
thesis-statement
THE PIVOT
The Core Argument: From Extractive to Aligned Economics
Points programs are a temporary, extractive model; sustainable loyalty requires staking to create direct economic alignment.
Points are a liability. They are an opaque, off-chain promise that accrues cost without creating value, functioning as a marketing subsidy that inflates user acquisition metrics.
Staking creates alignment. Requiring a user to stake a protocol's native token (e.g., GMX's GLP, Aave's aTokens) directly ties their financial outcome to the platform's long-term health and security.
The model flips incentives. Points reward passive consumption, while programmatic staking rewards active participation and governance, transforming users from rent-seekers into stakeholders.
Evidence: Protocols with deep staking like Lido and Rocket Pool demonstrate that skin-in-the-game alignment drives superior protocol resilience and user retention versus transient points farmers.
key-trends
FROM POINTS TO PROTOCOLS
Key Trends Driving the Shift
Legacy loyalty programs are collapsing under their own weight, creating a vacuum for on-chain primitives that align incentives through real economic participation.
01
The Liquidity Problem
Points are a liability on a company's balance sheet, not an asset. They create $10B+ in unredeemed obligations that must be managed, creating perverse incentives to devalue them.\n- Zero Capital Efficiency: Locked value generates no yield for the issuer or holder.\n- Accounting Nightmare: Points are a financial liability, not a programmable asset.
$10B+
Locked Liability
0%
Yield
02
The Solution: Stake-to-Access
Replace points with staked tokens that grant access and governance. This transforms a cost center into a capital-efficient, community-owned asset.\n- Protocol-Owned Liquidity: Staked assets create a permanent liquidity pool for the brand's ecosystem.\n- Aligned Incentives: Users earn yield and governance rights; brands gain a committed user base and a revenue-generating treasury.
>5%
Base Yield
100%
Capital Util.
03
The Composability Mandate
Loyalty must escape walled gardens. On-chain staking positions are composable financial primitives that can be used across DeFi.\n- DeFi Integration: Staked loyalty tokens can be used as collateral for lending on Aave or Compound.\n- Cross-Protocol Rewards: Yield can be automatically routed through Convex or Stake DAO for optimization.
10x
Utility Surface
Unlimited
Integrations
04
The Data Transparency Trap
Traditional programs hoard user data, creating privacy risks and mistrust. On-chain loyalty is transparent-by-default with user-controlled privacy via zero-knowledge proofs.\n- Auditable Rules: Reward calculations are on-chain, eliminating "black box" adjustments.\n- User Sovereignty: Users can prove engagement (e.g., with zkProofs) without revealing full transaction history.
100%
Rule Transparency
ZK-Proofs
Privacy Tech
05
The Flywheel of Stake-for-Service
Pioneered by EigenLayer and Ethena, this model allows users to stake a universal asset (e.g., ETH, stablecoins) to access premium services.\n- Capital Reuse: The same capital secures the network and unlocks loyalty perks.\n- Viral Distribution: Staking becomes the acquisition channel, as seen with EigenLayer's $15B+ TVL from restaking.
$15B+
TVL Model
2-in-1
Capital Use
06
The End of Program Ops
Managing point issuance, blackouts, and partner deals requires massive overhead. Smart contracts automate 90% of program operations.\n- Trustless Partnerships: Royalty splits and co-branded rewards are enforced by code, not legal contracts.\n- Dynamic Rewards: APY adjusts automatically based on protocol revenue or user engagement metrics.
-90%
Ops Cost
24/7
Automation
LOYALTY MECHANICS
Points vs. Staking: A Feature Matrix
A first-principles comparison of traditional points systems versus on-chain staking for user engagement and protocol value capture.
| Feature / Metric | Traditional Points | On-Chain Staking | Hybrid (Points + Staking) |
|---|---|---|---|
Capital Efficiency | 0% (Air-Dropped) | 100% (User Capital at Work) | 0-100% (Varies by Design) |
Liquidity Lockup | Partial (via ve-token models) | ||
Real-Time Value Accrual | |||
Sybil Attack Resistance | Low (Cost = API Calls) | High (Cost = Gas + Capital) | Medium (Depends on Staking Gate) |
Protocol Revenue Share | Conditional (e.g., EigenLayer) | ||
User Exit Friction | Zero-Click Abandonment | On-Chain Unstaking (7-30 day delays common) | Variable |
Composability (DeFi Lego) | Limited | ||
Primary Value Driver | Speculative Airdrop | Cash Flow & Governance | Speculation + Cash Flow |
deep-dive
THE ENGINE
Deep Dive: The Staking Flywheel Mechanics
Staking transforms passive loyalty points into a capital-efficient, protocol-owned liquidity engine.
Staking creates protocol-owned liquidity. Users lock assets for rewards, which the protocol re-deploys as working capital. This is superior to points, which are a marketing liability with zero balance sheet utility.
The flywheel is capital efficiency. Staked assets generate yield, subsidize user rewards, and fund growth—all from a single capital pool. Points programs burn cash for ephemeral engagement with no compounding returns.
Real yield is the retention mechanism. Protocols like Lido and EigenLayer demonstrate that sustainable yield retains users longer than any gamified leaderboard. The asset becomes the program.
Evidence: EigenLayer attracted over $15B in restaked ETH by offering points and a native yield-bearing asset (LSTs), proving the model's dominance over pure points systems.
counter-argument
THE ECONOMICS
Counter-Argument: Isn't This Just a Ponzi?
Staking-based loyalty is a capital-efficient subsidy, not a pure yield scheme.
The Ponzi comparison fails because the yield is not the primary value driver. The core value is utility—access to discounts, exclusive products, or governance rights. The yield is a capital efficiency subsidy for forgoing liquidity, similar to staking rewards in Ethereum or Solana.
Traditional points are the real liability. They are an off-balance-sheet debt the company must one day redeem, creating a massive, opaque future obligation. Staked assets are on-chain capital that funds operations or provides protocol security, creating a verifiable, productive asset.
Evidence: Protocols like Lido and Aave demonstrate that staking yields are sustainable when derived from real protocol revenue (fees, MEV). A loyalty program's yield is sustainable if subsidized by the increased lifetime value of a locked-in customer, a proven retail metric.
protocol-spotlight
THE FUTURE OF CUSTOMER LOYALTY: STAKING, NOT POINTS
Protocol Spotlight: Early Builders
Points are opaque, custodial, and non-transferable. The next wave of loyalty programs will be built on-chain, using staked assets to create verifiable, composable, and economically-aligned relationships.
01
The Problem: Opaque Points & Centralized Custody
Traditional loyalty points are a black box of governance and a balance sheet liability. Users can't audit issuance, points are locked to a single brand, and programs are vulnerable to devaluation or shutdown.
- Zero Composability: Points cannot be used as collateral or traded.
- High Trust Assumption: Users must trust the brand's promise of future value.
- Inefficient Capital: Billions in liability sits idle on corporate ledgers.
$0
Secondary Market Value
100%
Custodial Risk
02
The Solution: Programmable Staking Vaults
Replace points with staked, liquid tokens. Users deposit assets (e.g., stablecoins, ETH) into a brand's vault, earning yield and loyalty perks proportional to their stake. This aligns incentives and creates a transparent, on-chain reputation layer.
- Verifiable Commitment: Stake size and duration are public proof of loyalty.
- Capital Efficiency: User funds remain liquid and productive.
- Composable Rewards: Staked positions can be used as collateral in DeFi or to access partner protocols.
5-15%
Base Yield + Perks
24/7
Exit Liquidity
03
Pioneer: Friend.tech & The Social Staking Model
Friend.tech demonstrated the core loop: stake (buy keys) to access exclusive content/community. This transforms social capital into a tradable, staked asset. The model extends to commerce: stake to unlock pricing, products, or governance.
- Dynamic Pricing: Bonding curves align early adopter rewards.
- Direct Monetization: Creators/brands capture value from super-fans.
- Protocol-Owned Liquidity: Fees accrue to the treasury, not intermediaries.
$50M+
Peak TVL
10x
Key Holder Multiplier
04
The Infrastructure: EigenLayer & Restaking Primitives
EigenLayer's restaking model is the blueprint. Users stake native ETH to provide security (and earn yield) to other protocols. For loyalty, imagine restaking a stablecoin to secure a brand's supply chain oracle and earning perks. This creates a universal, portable loyalty layer.
- Shared Security: One stake secures multiple services.
- Sybil Resistance: High capital cost prevents fake loyalty.
- Modular Design: Brands plug into existing staking pools.
$15B+
TVL in Restaking
New Asset
Loyalty-as-a-Service
05
The Flywheel: Liquidity & Composable Perks
Staked loyalty tokens become liquid DeFi assets. A user's stake in a coffee brand could be used as collateral to borrow against for a flight, unlocking a composable graph of commercial relationships. Protocols like Aave and Uniswap become loyalty aggregators.
- Cross-Brand Perks: Stake in Brand A unlocks discount at Partner B.
- Enhanced Yield: Staked LP positions earn trading fees + loyalty rewards.
- Automatic Rewards: Smart contracts distribute perks without user action.
100+
Potential Integrations
>1
Utility Multiplier
06
The Endgame: User-Owned Commercial Graphs
The final state is a user-controlled dashboard of staked relationships across brands, protocols, and communities—a Sovereign Loyalty Portfolio. This flips the model: instead of brands tracking users, users present verifiable, portable reputation to access services globally.
- Portable History: Your on-chain stake history is your resume.
- Negotiating Power: High-stake users can demand better terms.
- Anti-Fragile Systems: Loyalty programs become decentralized networks.
User-Owned
Data & Value
Network Effect
As Defense
risk-analysis
THE PITFALLS OF PROGRAMMABLE LOYALTY
Risk Analysis: What Could Go Wrong?
Tokenizing loyalty introduces new attack vectors and systemic risks that traditional points programs never faced.
01
The Oracle Manipulation Attack
On-chain staking rewards require off-chain data (e.g., purchase volume, engagement). A corrupted oracle is a single point of failure.
- Exploit: Manipulate data feeds to mint unearned loyalty tokens, diluting holder value.
- Consequence: Complete loss of trust; program becomes a negative-sum game for honest users.
- Precedent: Similar to DeFi oracle attacks that have drained $100M+ from protocols like Chainlink-reliant systems.
$100M+
Historical Losses
1
Single Point of Failure
02
Regulatory Ambiguity as a Kill Switch
Staked loyalty tokens that accrue value may be classified as securities by the SEC or other global regulators.
- Risk: Sudden enforcement action forces program shutdown, freezing user assets.
- Cost: Legal defense and compliance overhead can reach $5M+ annually, negating program ROI.
- Example: Coinbase's legal battles show the existential threat of regulatory overreach, even for established entities.
$5M+
Annual Compliance Cost
SEC
Primary Threat Actor
03
The Liquidity Death Spiral
Loyalty tokens require deep liquidity for users to realize value. Without it, the staking contract becomes a trap.
- Mechanism: Low liquidity leads to high slippage on exit, discouraging redemptions and collapsing demand.
- Outcome: Token price trends to zero, making the loyalty asset worthless despite user engagement.
- Parallel: Mirrors the failure of many DeFi 1.0 governance tokens with >90% price decay from poor liquidity design.
>90%
Potential Drawdown
High Slippage
Exit Barrier
04
Smart Contract Immutability vs. Business Agility
On-chain logic is hard to upgrade. A flawed rewards formula or a discovered bug is permanently exploitable.
- Dilemma: Businesses cannot pivot loyalty terms without complex, risky migration or governance votes.
- Vulnerability: A single bug, like those seen in early Compound or Aave forks, could drain the entire rewards pool.
- Trade-off: The security of immutability sacrifices the marketing agility that made points programs successful.
Permanent
Bug Lifespan
Zero
Agility
future-outlook
THE STAKE
Future Outlook: The 24-Month Horizon
Loyalty programs will shift from opaque point systems to transparent, on-chain staking mechanisms that create direct financial alignment.
Staking replaces points because it creates direct financial alignment. Points are a liability on a company's balance sheet; staked assets are a composable, yield-generating asset for the user. This transforms loyalty from a marketing cost center into a capital-efficient growth engine.
The interface abstracts complexity through smart accounts like Safe or Biconomy. Users approve a single 'loyalty staking' intent, and the account manages deposits, yield strategies via Aave/Compound, and reward claims across chains. The experience feels like clicking 'Earn Points'.
Programs become cross-brand portfolios. A user's staked loyalty position across Starbucks, Nike, and United becomes a single, rebalanceable asset. Aggregators like Pendle will create yield-tokenized derivatives, letting users hedge or leverage their aggregated loyalty yield.
Evidence: Starbucks Odyssey's beta demonstrated that NFT-based rewards drive 5x higher engagement than traditional points. The next iteration will replace NFTs with a staked, rebasing ERC-20 token, making the value liquid and transparent.
takeaways
LOYALTY ENGINEERING
Key Takeaways for Builders
Move beyond ephemeral points to programmable, capital-efficient loyalty primitives.
01
The Problem: Points Are a Tax on Engagement
Legacy points systems are off-chain liabilities with zero utility, creating $10B+ in unproductive balance sheet bloat. They are opaque, non-composable, and vulnerable to Sybil attacks.
- Cost Center: Points are a pure marketing expense with no yield.
- Low Stickiness: Users chase the next airdrop; zero switching cost.
- No Composability: Cannot be integrated into DeFi or used as collateral.
$10B+
Off-Chain Liability
0%
Capital Utility
02
The Solution: Programmable Staking as a Core Primitive
Replace points with directed staking vaults. Users stake native assets (ETH, stablecoins) into protocol-controlled liquidity, earning real yield + loyalty rewards. This aligns incentives and creates durable capital.
- Capital Efficiency: TVL works for the protocol (e.g., lending, liquidity) while rewarding users.
- Strong Lock-in: Unstaking forfeits rewards; creates genuine switching cost.
- Composability: Staked positions can be tokenized (e.g., EigenLayer, Liquid Staking Tokens) for use across DeFi.
5-15%
Combined APY
10x
Stickiness
03
Architect for Cross-Protocol Loyalty
Loyalty staking must be portable and intent-based. Build with standards like ERC-4337 (Account Abstraction) and ERC-6551 (Token-Bound Accounts) to enable seamless cross-protocol reward aggregation.
- Unified Identity: A user's loyalty stake and history are portable across dApps.
- Intent-Based Rewards: Systems like UniswapX and CowSwap demonstrate the power of solving for user intent over simple transactions.
- Modular Design: Use EigenLayer for restaking security, LayerZero for cross-chain messaging, and Hyperliquid for perpetuals integration.
ERC-6551
Portable Identity
Multi-Chain
Native Design
04
The New KPI: Protocol-Owned Liquidity (POL)
Measure success by Protocol-Owned Liquidity, not monthly active users. POL is productive, fee-generating capital that defends your treasury and creates a sustainable flywheel.
- Sustainable Revenue: Fees from POL subsidize user rewards, replacing inflationary token emissions.
- Anti-Fragile Treasury: Your protocol's liquidity is not at the mercy of mercenary capital.
- Valuation Anchor: POL is a tangible, on-chain metric for valuation, unlike vanity engagement stats.
POL > MAU
True Metric
Fee-Positive
Reward Model
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