What Is Wrong With Token Rewards And How to Fix It

In recent years, token rewards have become a popular mechanism for incentivizing various behaviors, ranging from participation in online communities to driving specific actions within decentralized networks. However, despite their widespread adoption, token reward systems often encounter significant challenges and criticisms.

From issues of sustainability to concerns about fairness and effectiveness, several key problems need to be addressed. In this article, we'll explore what's wrong with token rewards and propose potential solutions to mitigate these issues.

One of the fundamental criticisms of token rewards is their often speculative nature. Many tokens lack intrinsic value beyond their utility within a specific ecosystem. This can lead to volatility and instability, making it difficult for participants to rely on them as a consistent incentive mechanism.

Token reward systems can incentivize short-term behavior at the expense of long-term sustainability. Participants may prioritize actions that yield immediate rewards rather than contributing to the overall health and growth of the ecosystem.

In some token economies, a small number of participants or entities may accumulate a disproportionate amount of wealth, leading to centralization and inequality. This concentration of tokens can undermine the decentralization ethos that many blockchain projects aim to achieve.

That said, several platforms have worked to fix what they believe to be a fundamental challenge with token rewards in crypto. LIX, a loyalty management system, is one such name. And we spoke with Andrew Doxsey — CEO and Co-Founder — to understand the vision for the platform going forward.

1. What primary challenges are you looking to solve with LIX?

Loyalty programs are often fragmented, inflexible, and offer limited value, particularly in the realm of tokenized reward systems. We address these issues by providing real-world utility and sustainable value. For example, our tokens are utilized for rewards in partnership with some of the world's leading brands, enabling users to redeem tokens for a wide range of products and services beyond the niche Web3 ecosystem.

Currently, our community members can shop on affiliate platforms like ComAve, which offers shopping experiences both in-store and online with major football clubs, and redeem rewards for future purchases at popular retailers such as Amazon, Adidas, Starbucks, and H&M, among others. This approach enhances the intrinsic value of LIX, making it a more stable and reliable incentive for long-term participation and growth in the loyalty program.

Many consumers are part of multiple loyalty programs, each with its own rules and rewards. In the future, our plan is to integrate these programs into a global loyalty coalition model. This model will allow thousands of brands and various sports communities to interact within a unified space. Here, loyalty rewards can be earned and redeemed in a fair and transparent manner, facilitated by smart contract-driven automation.

2. What are the platform’s unique solutions, and how do you envision it working?

We leverage blockchain to redefine loyalty programs by ensuring seamless interoperability and efficient management through smart contracts. These features are crucial for reducing the complexity typically associated with blockchain-based operations, making it user-friendly even for those without prior blockchain knowledge.

By automating the creation and management of digital wallets and transactions, the typical barriers to entry for users and merchants can be avoided. This simplicity is crucial for ensuring widespread adoption and proved especially effective in boosting fan engagement during large-scale sports events, as experienced at the FIFA World Cup fan zones in 2022.

There, our tokenized loyalty solution was implemented across over 300 restaurants, where fans benefited from the real-time settlement of loyalty points. Participating merchants also enjoyed reduced administration usually associated with the reward reconciliation.

3. What strategies for scaling are you looking at? How do you believe the market will perceive LIX?

We aim to enhance our platform's capabilities and extend our reach within and beyond the sports sector. Following on from our track record with European football clubs, our growth strategy includes deepening existing partnerships and exploring new ones in diverse fields such as cricket in Asia, and basketball, American football, and ice hockey in the US.

In recent years, Starbucks has been at the forefront of loyalty programs, enabling customers to earn and manage rewards through their mobile apps while using data analytics to tailor offers to individual preferences. The integration of purchases with point accumulation gives a logical and consumer-friendly approach.

We aim to extend this advanced loyalty concept by offering a platform that hundreds of brands can utilize, especially those that lack the technical resources to develop such initiatives independently. We believe the perception is one of innovation and significant potential impact in reshaping how loyalty is conceived and executed globally.

4. Does it work with gaming alone? Or are there alternative use cases?

No, LIX rewards are not confined to any specific industry. Our platform's architecture supports a range of applications across multiple industries, highlighting the versatility through API integrations across various business models, from retail to food service. For example, our integration with POS systems like Tamias and Spectrum Performance allows customers to earn rewards by scanning their receipts.

This feature will be utilized again at the Copa America fan zones this summer in the US. Additionally, our collaborations with sports fan engagement platforms such as ComAve, in partnership with clubs like AC Milan, AFC Ajax, and Crystal Palace, demonstrate how our features can engage sports fan communities effectively. ​​

The "Fan Photo Challenge" is a social media engagement campaign designed to boost fan interaction and brand loyalty by encouraging fans to post themed photos in support of their favorite team or brand. Participants will use designated hashtags and tag the brand's official account to earn points in their loyalty program, with additional points awarded for posts that achieve significant likes, shares, or comments.

​​Incorporating rewards into user experiences can significantly enhance engagement and motivate participation across diverse platforms. From educational achievements and fitness goals to community service and customer feedback, rewards such as discounts, recognition, and virtual goods incentivize desired behaviors.

By strategically implementing rewards systems, organizations can boost long-term engagement, create loyalty, and drive continuous interaction in sectors ranging from healthcare and sustainability to corporate settings and public transportation.

5. How do you believe the future of blockchain gaming will play out going forward?

As awareness and understanding of blockchain technology expand, we anticipate that more gamers and developers will embrace blockchain gaming, leading to its broader adoption across the industry. The play-to-earn model is particularly appealing as it allows players to earn real-world value through in-game activities. With the increasing adoption of virtual gaming spaces and mixed-reality headsets, we expect the gamification of everyday activities to offer rewards, further blurring the lines between gaming and real-world value.

Conclusion

At the end of the day, token rewards remain a critical part of any project’s engagement strategy. And as products look to optimize their reach, everyone expects them to play a continually critical role going forward.