Loyalty rewards programs have become a fundamental part of today’s businesses. According to statista, this market was valued at $11.71 billion in 2023, with projections showing it could surpass $41.2 billion by 2032.
What’s even more optimistic is the recent integration of novel technologies, such as Web3, into the loyalty rewards model. There are several companies that have launched Web3-powered rewards programs, including well-known brands like Starbucks, Adidas and Nike.
However, amidst this progress, some cracks are emerging. Web3 rewards programs, in their current state, are yet to deliver the true promise of blockchain technology – open access, global usability and liquid market ecosystems.
Most of the existing Web3 reward programs operate in siloed environments which is no different from the traditional loyalty model where customers are limited on how and where they can spend their rewards.
Exchange Friction and Liquidity Management
One of the main reasons why Web3 rewards programs are not as open as they seem is because of the friction in redeeming the rewards with different brands or exchanging them for other valuable assets.
For example, Starbucks’ Odyssey program, which closed 18 months after launching, had adopted a non-fungible token (NFT) reward model. The idea was to reward customers with unique NFTs for completing interactive activities dubbed ‘journeys.’ While the NFTs opened up more opportunities for customers to enjoy immersive experiences at Starbucks, the process of external redemption or selling the rewards through NFT marketplaces was not as seamless.
This is because the rewards were limited to benefits offered within Starbuck’s services. To add to it, customers would require some technical know-how in order to transfer the NFTs across the right channels, not to mention the costs involved in moving the rewards across different marketplaces or blockchain ecosystems.
For context, a simple transfer or transaction on the Ethereum blockchain at the height of the NFT bull run would have cost anywhere between $40 and $190 – quite a significant price to pay for one to access their rewards which are meant to be ‘free’.
The friction in exchanging Web3 loyalty rewards has also had a spillover effect on the liquidity sustainability of this nascent market.
While some Web3 rewards programs have tried creating liquidity pools on decentralized exchanges (DEXs) or pushing for the reward assets to be listed on prominent exchanges, the strategy has proven to be a short-term band-aid. Loyalty rewards programs require a sustainable liquidity model so as to maintain a high ‘redemption value’ for the rewards that they issue out.
In this case, a high redemption value entails two major factors; more redemption options and how attractive the rewards will continue to be in the long run.
What happens if customers cannot extract value outside the issuing ecosystem? Naturally, the rewards become less valuable given that customers have limited redemption options.
Universal Direct Redemption: The Future of Web3 Rewards
Instead of launching initiatives that focus on a single brand, the issuers of loyalty rewards would be better off freeing up their rewards to be used across different brands. This is the idea behind notable rewards coalitions such as the airline miles program and Amex rewards.
The approach is even more feasible in Web3, where open and trustless infrastructures make it seamless for any entity or customer to participate in a universal rewards ecosystem. Although futuristic, more advanced Web3 loyalty rewards initiatives, such as the Me Protocol, are already building infrastructures that support universal direct redemption.
This Web3 protocol leverages a specialized automated market maker (AMM) to support the direct redemption of loyalty rewards across any brand that has connected to its network. More importantly, Me Protocol’s Web3 plug-and-play infrastructure is designed in such a way that brands or customers do not require any blockchain knowledge to join the ecosystem.
Brands with existing loyalty rewards or those looking to launch can seamlessly connect their programs in a frictionless and trustless way through the available APIs. On the other hand, customers who receive loyalty rewards can redeem them with any brand connected to the Me Protocol ecosystem.
This type of interoperability is what is needed to solve the friction and liquidity challenges that currently exist in Web3 loyalty rewards programs. Customers will have access to more brands where they can redeem their rewards, ultimately preventing a situation where the value reduces as a result of limited redemption options.
Moreover, a universal redemption model perfectly aligns with some of Web3 core ethos – interoperability, inclusion and not forgetting the aspect of reward usability.
Conclusion
Loyalty rewards programs will continue to play an integral role in customer acquisition and retention. However, as this industry adopts newer technologies, it is important to reflect on what’s working and what can be improved.
In the case of Web3, reward programs ought to move away from siloed environments that limit usability to more universal ecosystems where reward redemption is a seamless endeavor. Only this way can the true value of decentralization be fully realized in the loyalty rewards market.
