Web3 Loyalty Programs Are a Trojan Horse for Good Crypto Policy

There’s a legal saying that “bad facts make bad law.” Right now, crypto needs better facts. If crypto wants to resonate with policymakers, we should deemphasize the facts and narratives that threaten governments (down with fiat!) and the well-heeled (down with banks!).

Instead, crypto needs to emphasize meat-and-potatoes stories that are simple, valuable and pro-consumer. This is a technology that supposedly benefits everyone, that strengthens communities without dismantling individual rights. Odd as it may sound, one of the clearest examples of this are Web3 loyalty programs.

Josh Rosenblatt is general counsel, chief operating officer and co-founder of Co:Create. This article is part of CoinDesk’s Policy Week.

The benefits of Web3 loyalty programs

Web3 loyalty programs have numerous advantages over traditional loyalty programs, but three will resonate the most with policymakers: ownership, control and interoperability. With a Web3-based loyalty program, users have true ownership of their points, tier status and brand-related collectables – all of which come in various forms of “loyalty tokens.” Users also have the ability to transfer, trade or sell their property – as the brands see fit.

Because companies can make their loyalty tokens subject to transfer restrictions, they have granular control over how their loyalty programs operate and who can participate. Brands can choose what wallets can receive tokens based upon set requirements. This goes far in showing that Web3 loyalty tokens are not securities, because they cannot necessarily be traded for a profit. Instead, they’re a consumable good.

Another benefit of Web3 loyalty programs is that brands can choose to make their loyalty programs interoperable. This means that loyalty tokens can be earned or redeemed by any brand that wants to participate in a particular program.

See also: The Loyalty Revolution / Opinion

Examples of this interoperability exist today but are limited by Web2 technology that requires collaborations to be manual, time-consuming and bi-directional (meaning that Brand A must negotiate a deal with Brand B and pursue a timely and expensive systems integration in order to collaborate).

Web3 loyalty programs make these collaborations partially or completely permissionless, depending on the brand’s preferences. Any participating brand can partner with any other participating brand. Brands with similar audiences and noncompeting products could cross-promote and leverage each other’s brand value – with little to no preplanned coordination. For example, a restaurant could give gold tier members of a product a discount for a limited time, simply by the user providing the NFT that represents their gold tier membership.

Adoption will come via a Trojan horse

If Web3 loyalty programs are successful, they will drive positive outcomes for the entire crypto industry by onboarding new users in a familiar context.

First, they provide a low-stakes introduction to crypto assets and blockchain technology through shared incentives. There’s no faster way to get everyday users comfortable with wallets than providing real-life benefits (i.e., discounts at their favorite stores). Web3 loyalty programs make it easier for people to understand and embrace the technology by getting wallets into people’s hands and encouraging them to use blockchain-based tools in a familiar context with clear benefits.

Second, Web3 loyalty programs show the value of blockchain technology in a real-world context. These programs are not trying to revolutionize the world, but they are taking established programs and enhancing them with the added benefits only possible through the use of blockchain technology.

Good narratives make good policy

The entire industry will benefit if regulators and the public can think about crypto through the lens of Web3 loyalty programs, as regulatory frameworks already exist. Loyalty programs operate within well-established laws and regulations: consumer protection and privacy standards being among them. There are fewer open questions and less need for new legislation to govern Web3 loyalty programs.

Web3 loyalty programs are “nonthreatening.” Unlike other crypto use cases such as decentralized finance (DeFi), Web3 loyalty programs do not threaten the power of the state or traditional financial systems. It’s very hard to financially harm consumers with a loyalty program. This makes them more politically palatable and easier to regulate.

Web3 loyalty programs are also pro-business. They provide businesses with a valuable tool to compete, collaborate and attract customers. It becomes much harder for policymakers to regulate tools that are commonly understood as “good for business.”

If the Web3 loyalty program narrative is widely adopted, then everyday users will feel ownership and allegiance to Web3 technology. As users become aware of their ownership and control over their loyalty programs, they will become more supportive of crypto policies that benefit the entire industry.

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