Web3 loyalty programs: What’s holding them back?

The arrival of web3 introduced a possibility to vary the world of buyer loyalty applications. The concept was that by utilizing blockchain know-how, corporations may provide tokenized rewards that give prospects extra management. No extra factors expiring, no extra being caught in a single model’s ecosystem—simply pure freedom. A minimum of, that was the promise. The fact? It’s much more difficult.

Visa, for instance, launched its personal web3 loyalty pilot in early 2024, making an attempt to deliver this concept to life. But, regardless of all the joy, the issues with web3 loyalty applications are fairly clear: they’re laborious to make use of, they’re usually closed off, they usually endure from an enormous problem with liquidity. Tokenized rewards sound nice in idea, however what’s the purpose in the event that they don’t have real-world worth or can’t be simply used?

If web3 loyalty applications are going to work, they’ll want to unravel these key issues. Whereas a possible repair—one thing known as “Common Direct Redemption”—is on the horizon, we’re not there but.

The promise of web3 rewards

When web3 loyalty applications first appeared, the imaginative and prescient was easy: create a brand new sort of reward system the place prospects truly personal their rewards. As a substitute of factors that expire or can solely be redeemed for sure issues, tokenized rewards could be versatile and transferable. Prospects may commerce or promote rewards or use them throughout a number of platforms. Seems like a dream, proper?

In idea, web3 rewards would let prospects money of their rewards each time and nonetheless they wished. Personal your tokens, use them freely, and get away from the restrictions of conventional loyalty applications. This could’ve been a win for each prospects and companies. Companies would construct deeper relationships with their prospects, and prospects would really feel extra engaged and in management.

However that’s not precisely what’s taking place. Certain, tokenized rewards would possibly sound like they provide extra flexibility, however in observe, many of those applications are simply as limiting as their conventional counterparts. Plenty of them nonetheless lure customers in closed ecosystems. And even once they do let you commerce tokens, the method is so difficult that it’s extra hassle than it’s price.

The most important problem with web3 loyalty applications is that they’re simply too tough for most individuals to make use of. Let’s face it: Web3 know-how isn’t user-friendly. When you’ve ever tried to handle a web3 pockets, cope with fuel charges, or navigate a decentralized change, you already know it’s not precisely clean crusing. These platforms demand numerous technical know-how that almost all prospects merely don’t have.

Even web3 veterans discover the method clunky at instances. Establishing wallets, transferring tokens, managing non-public keys—it’s loads. So if you take an off-the-cuff person who’s used to conventional loyalty applications, asking them to change over to this extra difficult system is a big ask. And if one thing is just too difficult, individuals simply gained’t use it.

The entire level of web3 loyalty was to supply extra flexibility and ease of use. However proper now, utilizing tokenized rewards isn’t simpler than accumulating airline miles or cashback factors. It’s extra difficult, with extra steps and extra complications. Till web3 loyalty applications determine streamline the person expertise, they’re going to battle to win individuals over.

Liquidity in web3 loyalty applications

Then there’s the problem of liquidity. In conventional loyalty applications, your factors have worth as a result of you may change them for one thing: a flight, a free meal, or a reduction in your subsequent buy. In web3 loyalty applications, tokens are alleged to work the identical approach—besides they don’t at all times have the identical type of worth.

Liquidity, on this context, refers to how simply a token may be redeemed for one thing helpful. They don’t maintain a lot worth if you happen to can’t spend your tokens on stuff you need or want. The issue with many tokenized rewards is that they lack this liquidity. Sure, in idea, you may commerce or promote your tokens, but when there aren’t sufficient platforms or manufacturers accepting these tokens, their worth drops considerably.

Take Visa’s 2024 web3 loyalty pilot, for instance. It’s an thrilling step ahead, however even Visa—a large participant—faces the identical liquidity points. Tokens have to have actual worth and utility, and that’s solely doable if there’s sufficient demand for them. 

Proper now, many web3 loyalty applications don’t have sufficient companions or platforms the place tokens may be spent. And even once they do, the method of exchanging or redeeming these tokens is usually so difficult that almost all prospects don’t trouble.

Some applications have tried to create liquidity by itemizing tokens on decentralized exchanges or establishing liquidity swimming pools. Nevertheless, these strategies usually create short-term liquidity that fades over time, particularly if the token doesn’t have ongoing utility. It is a enormous problem for manufacturers making an attempt to make tokenized rewards work in the long term.

One potential solution to the liquidity drawback is common direct redemption. The concept right here is fairly easy: as an alternative of going by way of the effort of buying and selling or transferring tokens, customers would be capable to use them immediately for the merchandise they need—no have to change. 

For instance, if you happen to’re hungry for pizza, as an alternative of making an attempt to change your recreation rewards for some pizza tokens after which taking the pizza tokens to a pizzeria, you possibly can simply stroll as much as the pizzeria and use your recreation rewards immediately for a slice of pizza. There are not any difficult exchanges, simply direct redemption.

By permitting customers to skip the change course of, common direct redemption may make tokenized rewards much more sensible. This might assist hold the worth of those tokens excessive as a result of customers would truly be capable to spend them on issues they need with out leaping by way of hoops. It’s a technique to cut back friction and enhance the general usability of web3 loyalty applications.

Plus, by providing actual and helpful redemption choices, common direct redemption may assist create extra sustainable liquidity. As a substitute of counting on synthetic demand—like itemizing tokens on an change—manufacturers would supply ongoing worth to their prospects by giving them sensible methods to make use of their rewards.

Regardless of present impediments, web3 loyalty applications are filled with potential, and with massive names like Visa experimenting with blockchain to make these applications work at scale, customers may see actual change before we predict. 

Options like common direct redemption might be game-changers by letting prospects redeem rewards immediately and easily. Take into consideration all these unused airline miles, simply ready to be freed.