Token incentives in a world of intents

Apps are integrating into the supply chain as evidenced by two major trends: the migration to app rollups and the adoption of wallet abstractions. In other words, apps are taking control of the origination and routing of transactions – using declarative user “intents” – to optimize the user experience, and unlock new growth.

While these trends are set to improve the arduous crypto onboarding experience, they also intensify the competition for user attention, liquidity, and transactions. In recent years, this battle for attention has played out across various airdrop tactics. However, as the UX barriers imposed by crypto wallets fade away, consumers will be greeted by an abundance of crypto-enabled apps vying for their attention. This raises an important question: how will apps acquire and retain users in this emerging landscape?

In this post, we’ll explore how the adoption of intents is shifting the token distribution meta down-funnel with micro-reward incentives, gradually transforming loyal users into owners.

A more intentional Crypto

In order to understand where the future battles for attention will carry out, one must first understand the fundamental shifts occurring that account abstraction, as proposed in EIP-4337, and Multi-Party Computation solutions such as Capsule, are introducing to the ecosystem.

In short, a new wrapper of a transaction, the “intent”, has been introduced with the purpose of offloading the reasoning that users are burdened with when constructing and signing transactions– this is the source of many UX problems crypto has suffered from. If transactions describe “how” an action should be executed, an intent describes “what” the outcome of an action should be, without being concerned of the execution path. Intents move the reasoning of how to construct a transaction to the application layer, off of the blockchain, ultimately allowing the application to decide the execution path for the user’s action.

As you may imagine, this has profound effects on MEV, as intents are pseudo-transactions that are organized in private mempools, off chain, before they’re submitted to the public mempool. The key difference in this world of intents is that applications control how intents are translated into transactions, and since block builders are interested in maximizing the extractable value of each block, they’re motivated buyers of these pseudo-transactions.

The flow of user intents (simplified)
The flow of user intents (simplified)

This model introduces a fundamental shift in where competitive moats will form. It’s no longer as important to differentiate through building better infrastructure. Instead, building engaging experiences that capture and retain user interest is the differentiator, and the economic incentive to capture the flow of intents, is the catalyst.

The stakes are higher than ever for applications to acquire and retain users.

Uncomfortable truths

Cracking acquisition and retention in non-crypto apps requires relentless experimentation and fine-tuning, and this is no different for crypto-enabled apps. With the adoption of intents and wallet abstractions, the differences between traditional and crypto become harder to discern at the top of the acquisition funnel.

As such, we believe ad buys on traditional media platforms will displace airdrops as the dominant acquisition strategy for crypto-enabled apps, given that with wallet abstraction, prospective users can onboard without being hurdled into a brick wall. It’s an uncomfortable truth for some as crypto takes aim at growing its pie of users.

But once acquired, what will make users want to stick around? This is where crypto offers a unique advantage over traditional retargeting campaigns and loyalty points. The things that have always driven retention – perception of positive value exchange and incentives that reward repeat use – still hold true in crypto, but with one important difference: ownership.

Airdrops in their current form have repeatedly proven to be costly and ineffective at aligning incentives with actual participants. On a CAC basis, the performance of traditional advertising is superior to that of any airdrop– another uncomfortable truth. Apps will weigh how airdrops fit into their growth and retention strategies, and chances are, they don’t. At least not in their current form. The golden age of airdrops is behind us.

Instead, apps will look to distribute tokens down-funnel as a form of loyalty incentive to reward retentive behaviors. This is the new token distribution meta.

Creating the Next Billion Owners

With the abstracted crypto of the future, the “next billion” users are likely to be unaware that they’re interacting with blockchains at all, and this is in large part a necessary step in the maturation of the ecosystem. However, the good parts of crypto – the permissionless, user-owned, and interoperable parts that differentiate the crypto-enabled – will be exposed to newcomers for the first time, in the form of automated loyalty incentives.

Central to the new token distribution meta is a shift from “big bang” airdrops towards a more continuous and engaging incentive system. Frequent micro-rewards, delivered instantly, is the optimal way to simultaneously drive retentive behaviors, while rewarding user contribution with ownership.

At RabbitHole, we’ve been hard at work building for this future. In June we launched Terminal, a permissionless, self-serve tool that demonstrates the advantages of a micro-reward approach in acquiring crypto-native users. Looking ahead, we’re excited to share more about what we’re doing to enable micro-reward incentives in every app. Stay tuned.

Sound interesting? We’re hiring. Join us.

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