Crypto points are a new and rapidly growing segment of the crypto market
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As bullish sentiment in the cryptocurrency market continues to advance, even with pullbacks and consolidation causing a pause in the bullish price movements of bitcoin and ether, the cryptocurrency market continues to innovate and roll out new products and services. One such product that has recently attracted the attention of investors is the crypto projects that have been implemented throughout 115 billion points until now. Any product experiencing such rapid growth deserves additional analysis and critical examination; This is especially true in the cryptocurrency sector. Bull runs like the one that has developed since the launch of bitcoin spot ETFs can be reminiscent of previous bull markets that helped create many new and innovative products, services, and entire organizations.
However, new products and services are not universally sustainable nor are they good indicators of the health of any asset class. The latest bull market, within which bitcoin and other cryptocurrencies traded at all-time highs, coincided with the rise of the non-fungible token market, a host of decentralized finance initiatives, massive growth in betting services, and the rise of FTX. . Bull markets in any asset class can hide flawed business models, allow bad actors to take advantage of overall positive sentiment, and ultimately hurt investors.
This is not to say that the crypto points phenomenon is going to hurt investors, but it is definitely worth taking a closer look at these new products. Let's take a look at some of them.
What are crypto points?
The definition and characterization of crypto points will vary from project to project, but a working definition is that crypto points are off-chain tokens that are given to users of a platform or project as a reward for certain activities. These point rewards are typically implemented before an airdrop occurs so that users know what specific actions will be rewarded, even if airdrops are not guaranteed. In other words, these points can be compared to existing rewards points, miles, or other offers made by providers to customers based on usage or other actions.
Several follow-up points that need to be raised include 1) whether the issuance of these points off-chain is a taxable event, 2) is there a method to verify the total number of points issued, 3) is there a central repository for the spot? recipients to track individual status as well as total holdings, as in a permissionless blockchain, and 4) is there a whitepaper or reviewable mapping of how points are connected to shares, which in turn are linked to future air launches? Every project and point-issuing system is different, but ambiguity seems to be the dominant trend when trying to address these elements.
Are points creating volatility in cryptocurrencies?
Like any other bull market and a rapid rise in cryptocurrency valuations, the rapid rise of the crypto points market has led to trading, secondary markets and other volatility-driven activities by investors looking to generate profits in the space. fast growing. While not inherently a sign of unethical activity, traders and the volatility related to these still new assets can lead to losses and more questions about the stability and trading uses of these points.
This pattern is based on previous market trends. Specifically, CoinDesk had to close its DESK token because traders had created secondary markets to trade in, even though such behavior directly violated the terms of service. Points trade has evolved in a similar way, with most trade taking place in Whale Market and Pendle Finance. Further complicating these markets is the fact that 1) traders are not always trading the rights to the points themselves, but often the tokens to be issued in connection with the points, and 2) leverage drives these trading patterns. negotiation, in some cases. of traders achieving 74x leverage in certain cases.
Combining the creation of derivatives in a new asset class with high leverage multiples can create a situation that can leave investors trapped in times of market uncertainty or crisis.
Points can repeat past mistakes
Another major concern that crypto investors interested in points should be aware of are the risks that the points market is already showing signs that have existed in previous projects during bull markets. The lack of information available to investors related to issues such as total point issuance, airdrop redemption rates, or even data related to the specific stocks that will drive token issuance creates an opaque market. Furthermore, the leverage that already exists, combined with the continuous pursuit of yield that has long been an attribute of crypto projects ranging from stablecoins to DeFi, has a history of encouraging increasingly risky behavior.
This does not mean that points markets are doomed to failure, far from it. Rather, investors should objectively look at market trends, what these instruments really represent, and how to avoid the mistakes of past bull markets.
Crypto points are a rapidly growing trend in the cryptoasset market, but investors should be careful not to repeat the mistakes of previous bull markets.
