Loyalty NFTs Have the Power to Drive the Next Bull Run

It may not feel like it, but crypto has reached yet another inflection point. The next growth spurt in crypto will come from tokens supporting loyalty programs that motivate community engagement, not from yield-generating protocols. NFTs will serve as the foundation for these loyalty programs, which corporations like Starbucks, Disney, and Adidas have already introduced.

More novel crypto-native examples include Rally, a platform that allows individual creators to issue NFTs. One individual, “Alex,” actually “sold himself” on the blockchain using Rally, where he allowed NFT holders to vote on how he would spend his day.

The use of tokens to support loyalty programs will drive mass adoption of crypto because it’s a proposition that provides tangible value for consumers. Instead of providing their data or eyeballs, crypto loyalty tokens give users something real that brings them immediate value.

Blockchains Are About Community, Not Code

The fascinating part is that loyalty programs are an expression of crypto’s fundamental value — community. The challenge is that the amount of competing blockchains and platforms in crypto is so high that it’s easy for users to jump ship whenever the financial reward is higher elsewhere. We saw this in DeFi with the practice of “yield farming.”

The Loyalty Token Model

To mitigate this problem, we need a loyalty token model to drive long-term engagement on any given platform. One approach we’ve seen is “token-gated communities” like Friends With Benefits, which require users to buy tokens to gain access to a walled digital community.

Token gated communities extend outside the crypto space, Friends With Benefits for example is teaming up with Hennessy for an Art Basel 2022 NFT launch that includes access to an exclusive party if you hold one of 1765 NFTs.

This approach, however, simply recreates the old centralized paradigms of artificial exclusivity. DAOs are more promising because users get rewarded for sweat equity, not for merely buying access. CabinDAO is an example of a DAO where members literally “sweat” (by helping build cabins) in exchange for tokens.

But these are both crypto-native uses of loyalty tokens. When non-crypto native communities adopt crypto-powered incentives, we see the potential for true mass scale. Ecommerce is an excellent example of how NFTs that unlock better deals or access to exclusive products can drive deeper customer loyalty than the existing “points” models can.

Real-World Loyalty Token Use Cases

According to a Deloitte report, “blockchain is an ideal remedy for what ails loyalty rewards programs.” The chief complaint among customers is the long delays in delivering rewards points and the opaque and difficult-to-redeem benefits they provide.

Travala’s “Smart” program grants tiered rewards to users, including up to 13 percent discounts on travel in exchange for locking up “AVA” tokens for a limited time. They have also issued a “Travel Tiger” NFT, whose holders receive additional perks when booking through their platform.

Trust doesn’t mean forcing people to behave how you (or the founder) want them to behave; it’s about freeing people to behave how they want to behave and you being able to be okay with it.

The crucial point here is that rewards are distributed in time to a user-controlled wallet, and they can buy and sell their Travel Tiger NFT at any time on OpenSea — a sharp contrast to clunky models employed in the past. The program has been highly successful, with over 1000 ETH in trading volume on OpenSea.

Crypto.com follows a similar model to Travala, where users who lock up tiered quantities of “CRO” tokens are given discounts on fees and issued a credit card with up to five percent cash back on all purchases. Like Travala, these rewards are accessible in time in a user-controlled wallet.

• Binance’s “Launchpool,” where users lock BNB or other tokens to earn staking rewards for participating in new token launches.
• Kusama’s “Can You Spot Me?” game, which allows users to “hide” KSM tokens in plain sight and earn rewards when others find them.
• Polkadot’s “Stake DOTs to Earn Tickets” campaign, which enables users to earn tickets for a chance to win prizes like Ledger Nano S hardware wallets.

Creative Potential

These are all great examples of how crypto-powered loyalty programs can drive adoption by bringing immediate value to users. But they also serve as a powerful retention tool by making it more costly for users to leave.

Loyalty tokens align with a broader notion of what “trust” — an overused word in crypto — actually means. Trust doesn’t mean forcing people to behave how you (or the founder) want them to behave; it’s about freeing people to behave how they want to behave and you being able to be okay with it.

This is what crypto unlocks, and loyalty tokens have the potential to promote: not forcing people down narrow troughs of constricted behavior but rather unleashing their creative and industrial potential to actualize the greatest possible collective.

Huy Nguyen is a Vietnamese blockchain technology entrepreneur and the co-founder of KardiaChain, an interoperable blockchain infrastructure provider.

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