Web3 loyalty programs: What’s holding them back? | Opinion

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As a seasoned entrepreneur with a diverse background spanning multiple sectors and continents, I have seen countless technological advancements come and go. The advent of web3 loyalty programs, however, presents a unique opportunity to revolutionize customer engagement and reward systems.

With the arrival of web3, there was a chance to revolutionize customer loyalty programs. The concept involved using blockchain technology for companies to provide token-based rewards, thereby providing customers with greater control. This meant no more expired points and no more limitations within a single brand’s ecosystem – just pure flexibility. However, in practice, things are proving to be much more intricate.

For instance, Visa unveiled its web3 loyalty initiative back in early 2024, aiming to materialize this concept. Although there’s a lot of buzz surrounding it, several challenges with web3 loyalty systems are evident: they’re complex to navigate, they’re frequently exclusive, and they grapple with the problem of liquidity. The notion of tokenized rewards is appealing in theory, but their value diminishes if they lack practical use or can’t be easily converted into real-world currency.

To function effectively, web3-based loyalty programs must address critical issues. A possible solution known as “Universal Direct Redemption” is under development, but it’s still in the future.

The promise of web3 rewards

Initially, the concept behind web3 loyalty programs was simple yet revolutionary: to establish a novel reward system in which customers truly own their earned benefits, rather than having points that expire or can only be utilized for specific items. Instead of traditional points, these tokenized rewards would offer flexibility and transferability, allowing customers to trade, sell, or use them across various platforms – a concept that might seem like a utopia, indeed!

From my perspective as a crypto investor, web3 rewards offer an empowering opportunity where I can cash out my earnings whenever and however I desire, giving me the freedom to utilize my tokens as I see fit. Traditional loyalty programs often come with stringent limitations that hinder this flexibility. This innovative approach seemed like a double victory: businesses would foster stronger connections with their customers, while customers like myself would feel more immersed and in control.

But that’s not exactly what’s happening. Sure, tokenized rewards might sound like they offer more flexibility, but in practice, many of these programs are just as limiting as their traditional counterparts. A lot of them still trap users in closed ecosystems. And even when they do allow you to trade tokens, the process is so complicated that it’s more trouble than it’s worth.

The biggest issue with web3 loyalty programs is that they’re just too difficult for most people to use. Let’s face it: Web3 technology isn’t user-friendly. If you’ve ever tried to manage a web3 wallet, deal with gas fees, or navigate a decentralized exchange, you know it’s not exactly smooth sailing. These platforms demand a lot of technical know-how that most customers simply don’t have.

For even the most experienced users of web3 technology, the process can sometimes feel cumbersome due to tasks like creating wallets, transferring tokens, and handling private keys. This can be quite a challenge for someone accustomed to simpler traditional loyalty programs. Asking such a user to switch over to this more complex system is a substantial request. If something is too complicated, people tend to avoid it altogether.

The primary goal of web3 loyalty systems was to provide greater flexibility and simplicity. However, currently, earning tokenized rewards is not as straightforward as accumulating airline miles or cashback points. Instead, it’s more intricate, involving additional steps and potential complications. Until web3 loyalty programs can simplify the user experience, they may find it challenging to convince people to adopt them.

Liquidity in web3 loyalty programs

Additionally, there’s the matter of token liquidity in web3 loyalty systems. Unlike traditional reward points, which can be exchanged for goods or services like flights, meals, or discounts, these tokens may not consistently hold the same perceived worth.

In simpler terms, the term ‘liquidity’ here means how quickly a token can be exchanged for something practical. If you can’t use your tokens to buy things you desire or require, they don’t have much worth. Unfortunately, many token-based rewards face this issue because they lack liquidity. Although technically you could trade or sell your tokens, the problem arises when there are insufficient platforms or brands that accept those tokens. This scarcity causes a significant drop in their value.

Let’s consider Visa’s 2024 web3 loyalty program pilot as an illustration. It represents a significant stride, yet even a giant like Visa encounters the same challenges with liquidity. For tokens to hold real value and purpose, they must be sought after by a sufficient number of users, which is achievable only if there’s enough demand for them.

Currently, numerous web3 loyalty programs lack sufficient collaborators or venues for spending tokens. Additionally, even when such options exist, the process of swapping or cashing in these tokens is frequently intricate and confusing, causing many users to forego the effort.

Certain programs aim to generate fluidity by listing tokens on decentralized trading platforms or establishing liquidity pools. Yet, these strategies usually produce temporary liquidity that wanes gradually, particularly if the token lacks persistent usefulness. This is a significant hurdle for brands seeking to effectively employ tokenized rewards in the long term.

rather than having to deal with the complexities of trading or transferring tokens, users would have the option to utilize them directly for the products they desire. In other words, there’s no need for an exchange.

Instead of earning pizza tokens from your game rewards and then using those tokens at a pizzeria, you can simply take your game rewards straight to the pizzeria and redeem them there for a slice of pizza without any complex exchanges or intermediate steps. It’s a straightforward process with no need for additional transactions.

Streamlining tokenized rewards by eliminating the exchange process, universal direct redemption, makes these tokens more feasible for everyday use. This simplification allows users to spend their tokens directly on desired items without unnecessary complications. Essentially, it’s a method to minimize obstacles and enhance the user-friendly aspect of web3 loyalty programs.

In addition, implementing a universal system for immediate redemption that provides authentic and beneficial options can foster a more long-term financial flow. Rather than depending on fabricated interest—such as listing tokens on trading platforms—companies could enhance the worth of their customer relationships by providing genuine methods for them to utilize their rewards.

In spite of present challenges, web3 loyalty programs show great promise, and as major players such as Visa explore blockchain technology to scale these programs effectively, it may not be long before consumers witness tangible improvements.

One way to rephrase the given text in a more natural and easy-to-understand manner is: Innovative solutions such as universal direct redemption could significantly alter the landscape by enabling customers to easily and immediately redeem their rewards. Imagine all those accumulated airline miles, yearning for release.

Robert Wesley

Robert Wesley serves as the founder and CEO of My AI, the latest recipient of Tectris.VC’s web3 travel accelerator award. Known for his entrepreneurial prowess, Robert has established five businesses across various industries and continents. His extensive background in entrepreneurship ranges from graph computing to artificial intelligence, even extending to counter-terrorism efforts.

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2024-11-09 15:16