On-Chain Referrals

The core logic of the referral program—including eligibility, reward calculation, and distribution—is encoded in a smart contract. This ensures:

• Immutability: Rules cannot be changed unilaterally after deployment.
• Automatic Payouts: Rewards are distributed programmatically without manual intervention.
• Transparency: All referral links, sign-ups, and transactions are verifiable on the blockchain ledger.

Every referral action is recorded as a public on-chain transaction. This provides an immutable audit trail, allowing anyone to verify:

• The referrer's address and the referee's address.
• The exact timestamp of the referral event.
• The specific protocol or dApp where the action occurred. This eliminates disputes over attribution and provides clear analytics for program managers.

Rewards are not static; smart contracts enable complex, conditional incentive structures. Common patterns include:

• Tiered Commissions: Higher rewards for referees who reach certain activity thresholds (e.g., providing $1000 in liquidity).
• Time-Locked Rewards: Vesting schedules that release rewards over time to encourage long-term engagement.
• Multi-Asset Payouts: Rewards can be paid in the protocol's native token, a stablecoin, or even an NFT.

On-chain referrals function as decentralized lego blocks. A referral smart contract can be:

• Integrated with any other on-chain service (e.g., DEX, lending protocol, NFT marketplace).
• Forked and customized by other developers to create new programs.
• Connected to decentralized identity or reputation systems (e.g., ENS, on-chain credentials) to create sybil-resistant programs.

To prevent users from creating fake accounts (Sybils) to farm rewards, on-chain programs can implement trustless checks:

• Proof-of-Humanity or other attestation integrations.
• Minimum activity requirements (e.g., a referee must execute a transaction above a certain value).
• Unique address linking via social graph analysis or on-chain history, making large-scale fraud economically impractical.

Rewards are transferred peer-to-contract or contract-to-peer, removing intermediaries. Key characteristics:

• Global & Permissionless: Anyone with a wallet can participate and receive rewards directly.
• Reduced Counterparty Risk: Funds are held in the smart contract escrow, released only upon fulfillment of coded conditions.
• Instant Settlement: Payouts occur within the same blockchain transaction as the qualifying action, dependent on network confirmation times.

Protocols use on-chain referrals to bootstrap their user base by rewarding existing users for bringing in new, active participants. This creates a self-reinforcing growth loop where:

• Rewards are tied to specific actions (e.g., a new wallet's first swap, deposit, or mint).
• The referrer's reward is often a percentage of the new user's fees or a fixed bounty.
• Sybil resistance is achieved by requiring the new wallet to perform a verifiable, on-chain transaction.

Example: A DeFi protocol might offer a 10% fee rebate to the referrer for every trading fee generated by a referred address in its first 30 days.

Content creators, educators, and influencers can generate revenue by sharing referral links to on-chain services. This shifts affiliate marketing onto a transparent and trustless ledger.

• Payouts are automatic and verifiable via smart contracts, eliminating middlemen.
• Creators can prove their referral volume and earnings on-chain.
• Protocols can create tiered reward structures based on the volume or quality of referrals.

Example: A crypto educator shares a unique referral link to a lending platform; they earn a 0.1% commission on all deposits made through that link, paid directly in the platform's token.

Decentralized Autonomous Organizations (DAOs) use referral programs to align member incentives with community growth and decentralize their marketing efforts.

• Governance token rewards can be distributed to members who recruit active contributors or voters.
• Programs can be proposal-based, where the community votes on reward parameters and budget.
• This turns community members into stakeholder-marketers, directly benefiting from the network's expansion.

Example: A DAO for an NFT project offers 50 governance tokens to any member who refers a new collector that purchases a primary sale mint.

On-chain referrals enable composable incentive layers where one protocol's referral program can integrate with another's, creating complex reward flows.

• A wallet app could offer aggregated referral rewards across multiple integrated DeFi protocols.
• Reward tokens earned from referrals can be automatically staked or deposited into yield-bearing strategies.
• This composability allows for customized reward journeys without manual user intervention.

Example: A user refers a friend to a DEX. The friend's swap generates fees, triggering a reward in DEX tokens for the referrer, which are then automatically deposited into a lending pool on a different protocol via a pre-set automation.

Projects use referral mechanics to curate and reward an engaged early community during token generation events (TGEs) and airdrops.

• Referral points or multipliers are tracked on-chain and influence a user's final airdrop allocation.
• This helps identify and reward genuine network advocates rather than passive or sybil actors.
• The referral graph data itself becomes a valuable on-chain asset for analyzing community structure.

Example: A Layer 2 blockchain's airdrop program grants extra eligibility points for users who referred developers that deployed contracts or users who bridged significant assets to the chain.

Core smart contract patterns for building on-chain referrals include:

• Referral Registry: A central contract that maps referrer address → referred address.
• Fee Sharing Hook: A modifier or function in a core protocol contract that diverts a portion of fees to a registered referrer.
• Attestation & Proof: Using standards like EIP-712 for signed referral messages that can be verified on-chain.
• Temporal Logic: Implementing time-locks or expiration on referral codes to prevent indefinite claims.

These patterns ensure the system is secure, transparent, and non-custodial, with all relationships and payouts immutably recorded.

On-chain referrals use smart contracts to track and reward user acquisition. Key components include:

• Referral Code/Link: A unique, on-chain identifier for the referrer.
• Attribution Logic: Smart contract rules that verify a new user's first interaction was via a valid referral.
• Reward Distribution: Automatic, trustless payout of tokens, fee discounts, or points upon successful referral completion.

Compared to traditional off-chain programs, on-chain referrals offer distinct benefits:

• Transparency & Verifiability: All referral claims and payouts are publicly auditable on the ledger.
• Composability: Referral logic can be integrated with other DeFi primitives like staking or governance.
• Automation & Trustlessness: Eliminates manual processing and central authority; rewards are executed automatically by code.
• Sybil Resistance: Can leverage on-chain identity or transaction history to mitigate fake account creation.

Protocols implement various incentive structures to drive growth:

• Fee Sharing: The referrer earns a percentage of the fees generated by the referred user's transactions (common in DEXs and lending markets).
• Token Rewards: Direct distribution of the protocol's native token or governance tokens.
• Points Systems: Awarding non-transferable points that may lead to future airdrops or exclusive access.
• Tiered Rewards: Incentives that increase based on the referrer's own activity level or total referrals.

Real-world applications across different blockchain verticals:

• Decentralized Exchanges (DEXs): Platforms like GMX and dYdX have used on-chain referral programs to share trading fees.
• Layer 2 Networks: Arbitrum and Optimism employed referral campaigns during their initial user onboarding phases.
• Wallet & Onboarding: Wallets like Rainbow use referrals to reward users for bringing friends onto the platform.

Developers must address specific challenges when designing these systems:

• Attribution Window: Defining the timeframe for a referral to be valid (e.g., user's first transaction within 7 days).
• Reward Claim Mechanism: Designing gas-efficient processes for users to claim rewards.
• Front-running & Gaming: Mitigating exploits where users try to intercept or spoof referral links.
• Data Storage: Balancing the cost of on-chain storage for referral mappings with the need for permanence.

On-chain referrals intersect with several other Web3 concepts:

• Viral Coefficients: A metric for measuring organic growth driven by referrals.
• Affiliate Marketing: The broader business model, now decentralized.
• Quest Platforms: Services like Galxe that often incorporate referral tasks into campaign design.
• Sybil Attacks: A major security concern that referral programs must design against.

The mechanism by which referral incentives are automatically paid out by a smart contract. This involves deterministic logic that calculates the reward amount (e.g., a percentage of fees or a fixed token amount) and transfers it to the referrer's wallet. It ensures programmatic fairness and is a core feature that distinguishes on-chain systems from manual, off-chain processes.

A critical security property for referral systems that prevents a single entity from creating many fake identities (Sybils) to claim rewards fraudulently. On-chain systems combat this through mechanisms like:

• Staking requirements to become a referrer.
• Proof-of-personhood or identity verification.
• Behavioral analysis of referred wallet activity. Without Sybil resistance, referral economies can be drained by attackers.

The transparent analysis of referral program performance using publicly available blockchain data. This allows anyone to audit:

• Total referral volume and value.
• Top referrers and their success rates.
• Protocol growth attribution from referral channels. This visibility builds trust and allows for data-driven optimization of the referral program's parameters.

A common reward model where the referrer earns a percentage of the transaction fees or protocol revenue generated by the users they bring on-chain. This aligns incentives, as the referrer's reward is directly tied to the long-term activity and value of the referred user. It's a sustainable model that funds rewards from actual protocol usage rather than inflationary token minting.