Why Subsidized Onboarding (Scholarships) Is a Double-Edged Sword

Scholarships subsidize user acquisition by having managers front capital for assets like Axie Infinity's Axies, creating a play-to-earn workforce. This model bypasses the initial cost barrier but creates a rent-seeking intermediary layer that captures a significant portion of player yield.

The model inverts the player-developer relationship. Players become yield-optimizing agents for managers, not customers seeking entertainment. This leads to hyper-inflationary tokenomics where the primary in-game action is extracting value, as seen in the SLP token collapse.

Evidence: At its peak, Axie's scholarship program involved over 1.5 million players, but daily active users fell over 90% post-mania, proving the economic model was not sticky. Competing titles like Big Time and Illuvium now avoid pure scholarship structures, opting for hybrid free-to-play onboarding.

Scholarships create mercenary capital. Programs like Axie Infinity's initial model attract players seeking yield, not gameplay. This capital is the first to exit during a downturn, collapsing the in-game economy's liquidity and token price.

The model inverts value capture. Instead of the protocol capturing value from engaged users, it pays users to simulate engagement. This creates a perverse subsidy loop where protocol revenue funds player acquisition, not product development.

Compare Axie Infinity and STEPN. Axie's scholarship-driven hypergrowth led to a faster, deeper crash. STEPN's direct user purchase model, while also volatile, created a more direct correlation between utility and token demand, leading to a different failure mode.

Evidence: The Axie SLP chart. The Smooth Love Potion (SLP) token price collapsed from ~$0.35 to ~$0.005, a 98.5% drop, as scholar exit liquidity overwhelmed the tokenomics. The protocol's treasury drained funding rewards for non-value-added activity.

Subsidies create mercenary users. Programs like Optimism's initial airdrop or Arbitrum's Odyssey attract capital chasing yield, not protocol utility. This inflates metrics like Total Value Locked (TVL) with capital that exits immediately post-incentive.

The conversion funnel is broken. The user journey from airdrop farmer to protocol-native user requires a persistent value proposition. Most scholarship models, like early Axie Infinity adopters, fail this test when subsidies end.

Evidence: Layer 2 activity data shows a 60-80% drop in daily active addresses after major airdrop claims, as seen with Arbitrum and Optimism. The capital is transient, not sticky.

Scholarships create mercenary capital. Protocols like Axie Infinity demonstrated that paying users for sign-ups attracts agents optimizing for the payout, not the product. This results in sybil attacks and immediate sell-pressure on native tokens, destroying the economic model they aimed to bootstrap.

Subsidize the friction, not the user. The effective subsidy is the gas abstraction provided by Biconomy or the sponsored transactions on NEAR. This removes the upfront cost barrier for genuine interaction, converting curiosity into a first transaction without the protocol paying for loyalty it hasn't earned.

Compare subsidized access vs. subsidized action. A scholarship is a one-time payment for a claimed identity. A gas grant via Gelato's Relay or a fee-less trial via account abstraction is a payment for a verifiable on-chain action. The latter funds real usage data, not just user acquisition metrics.

Evidence: The 2021 Axie scholarship model led to a >99% collapse in AXS price and unsustainable inflation. In contrast, dApps using ERC-4337 account abstraction for sponsored sessions report 3-5x higher retention for users completing their first sponsored transaction versus airdrop recipients.