# Beyond Speculation: A Systematic Approach to Points Program Evaluation

## Executive summary

placeholder for the promise of an airdrop
blur, Friend.tech, all the LRT space

## Introduction

The emergence of crypto points programs has a variety of risks, of which participants need to be cognizant. One primary concern is the potential for ambiguous promises and speculation surrounding these programs. For instance, LRT points programs have led to widespread speculation about future airdrops, creating unrealistic expectations among users. This can lead to disappointment and potential financial losses if those expectations are not met. We have previously addressed this issue in [a publication examining the legal challenges surrounding points](https://www.llamarisk.com/research/eigenlayer-lrt-points).

Evaluating the risks associated with crypto points programs is essential for anyone considering to interact with a protocol that operates such programs. As these programs grow in popularity, they attract increasing scrutiny due to various inherent risks.

**Vague Promises**

A significant risk involves the potential for vague promises made by the projects behind these programs. Some programs have generated substantial speculation regarding future airdrops, which can lead to unrealistic expectations from participants. Consequently, the uncertainty can result in financial losses if the anticipated rewards do not materialize as promised.

**Crypto Market Volatility**

Moreover, the inherent volatility of the crypto market poses another risk. The value of points earned through these programs can fluctuate dramatically, influenced by market conditions. Market volatility can affect the perceived value of the points, making it challenging for users to accurately gauge their worth over time.

**Lack of Regulation**

Additionally, the lack of regulatory oversight in many jurisdictions can expose participants to potentially fraudulent or legally non-compliant schemes. Without proper regulations, it becomes difficult to hold projects accountable for their promises, increasing the risk of loss for investors.

**Staking/Restaking Risks**

Furthermore, the mechanics of staking and restaking, often associated with points programs, introduce their own set of risks. Both models involve locking up tokens to earn rewards, which can lead to liquidity issues if participants need to access their funds quickly.

While crypto points programs can offer enticing rewards, they come with significant risks as highlighted above. Participants should conduct thorough research and consider these factors before engaging in such programs. To support these needs, we introduce the points program risk scorer—our risk-scoring model designed to facilitate the thorough examination of protocols with points programs. This tool will track various aspects of the program, aiding users in determining risks related to user protection, liquidity, market performance, legal treatment, and more.

## Methodology

Our methodology involves a checklist that comprises various relevant components, each with a detailed evaluation logic. Notably, we have refrained from introducing numeric parameters because each protocol has unique features, ecosystems, market dynamics, user bases and so on. Unifying these diverse metrics under a single evaluation model is of limited utility. For example, some teams may achieve excellent results and deliver on their promises with lower Total Value Locked (TVL) than others that accumulate substantial funds but engage in constant speculation about the token launch.

The scores are divided into three categories:
- *Questionable* (attributing the lowest trust level),
- *Okay* (indicating medium performance and reliability), and
- *Safe* (the highest score, signifying that the points program is structured satisfactorily and compliantly).

For some sections, the scoring is spread across three buckets, while for others, the choice is limited to Questionable and Okay or Questionable and Safe, depending on the specific evaluation criteria.

The methodology is designed primarily to aid LlamaRisk in its risk assessment endeavors. Therefore, the output should not be solely relied upon to draw a comprehensive risk picture of the protocol under observation. Nonetheless, we believe that opening the scoring to the public would benefit end-users, enabling them to conduct their own due diligence and to better understand their risk exposures.

## 1. Funding and Investors

The examination of funding and investors provides insights into the project's perceived potential and market confidence. The involvement of prominent entities who have entrusted their capital to the project elevates expectations for the delivery of a profitable product. Conversely, the absence of notable backers, while not necessarily indicative of a fraudulent venture, may suggest that positive growth trajectories are less certain.

### 1a. Total Funding
This section scrutinizes the project's financial foundation, specifically examining the total funding procured through various investment rounds. The amount of capital raised serves as a critical indicator of the project's financial robustness and investor confidence. A substantial funding amount may suggest a higher likelihood of project sustainability and resource availability for development and growth.

| Score | Description |
| -------- | -------- |
| Questionable | Limited funding or difficulty in raising new rounds |
| Okay | Moderate funding with steady or slightly increasing valuations |
| Safe | Substantial funding raised across multiple rounds with increasing valuations |

### 1b. Notable Investors
We examine the roster of prominent backers and venture capital firms associated with the project. The presence of reputable investors often lends credibility and may indicate a rigorous due diligence process prior to investment.

| Score | Description |
| -------- | -------- |
| Questionable | Primarily unknown investors or lack of prominent backers |
| Okay | Mix of known investors and smaller firms |
| Safe | Backing from top-tier VCs and industry leaders with continued involvement |

## 2. Incentive Program

This section of the risk-scoring framework provides a comprehensive analysis of the project's incentive structure, a critical component in assessing the overall risk profile.

Firstly, we present a non-exhaustive catalogue of incentivized blockchain activities. This serves to illustrate the diverse range of observed models and facilitates user comprehension of the various incentive structures prevalent in the blockchain ecosystem.

Types of Incentivized activites may include:

- **Performing Testnet Transactions**: Engage with the project’s testnet to fulfill specific actions like transfers, swaps, or deploying contracts.
- **Staking Tokens**: Stake tokens in the project’s staking program to earn rewards.
- **Providing Liquidity**: Supply liquidity to the project’s pools.
- **Using DeFi infrastructure**: interacting with a DEX or lending protocol
- **Engaging with infrastructure**: registering in network-specific dApps such as that network's Name Service.
- **Collecting Points**: Engage in specific tasks or activities to collect points or complete quests.
- **Bridging Tokens**: Use bridging services to transfer tokens across different blockchain networks.

Subsequently, we conduct a thorough examination of the points program components that are instrumental in determining its regulatory compliance status. Our analysis encompasses the following key aspects:

### 2a. Program Status
Evaluating the clarity and definition of rewards.

| Score | Description |
| -------- | -------- |
| Questionable | NO |
| Safe | YES |

### 2b. Community Influence
Assessing whether the program is community-driven or founder-initiated.

| Score | Description |
| -------- | -------- |
| Questionable | founder-centric |
| Okay | Community-driven |

### 2c. Historical Performance
Examining the track record of previous incentive campaigns.

| Score | Description |
| -------- | -------- |
| Questionable | First-time launched |
| Okay | Existence of previous programs |

### 2d. Points Definition
Verifying the existence of a clear definition for points or analogous rewards.

| Score | Description |
| -------- | -------- |
| Questionable | NO |
| Safe | YES |

### 2e. Legal Framework
Confirming the inclusion of points in terms and conditions, with references to external governing rules.

| Score | Description |
| -------- | -------- |
| Questionable | NO |
| Safe | YES |

### 2f. Allocation Methodology
Investigating the presence of a formula or logical explanation for point distribution.

| Score | Description |
| -------- | -------- |
| Questionable | NO |
| Okay | YES |

### 2g. Transferability
Determining if points can be transferred between users.

| Score | Description |
| -------- | -------- |
| Questionable | NO |
| Safe | YES |

### 2h. Revocability
Ascertaining whether the program operator can revoke points.

| Score | Description |
| -------- | -------- |
| Questionable | NO |
| Safe | YES |

### 2i. Monetary Value
Evaluating if points possess intrinsic monetary value.

| Score | Description |
| -------- | -------- |
| Questionable | YES |
| Safe | NO |

## 3. Network and Launch Information

This segment delves into the technical underpinnings of the project, including:

### 3a. Blockchain Infrastructure
Identifying the primary blockchain network and assessing multi-chain support.

The evaluation of multi-chain coverage serves as a crucial indicator of the project's potential to attract TVL and expand its user base beyond the confines of mainnet. Projects with robust multi-chain support often demonstrate enhanced adaptability and a broader market reach, potentially mitigating risks associated with over-reliance on a single network.

| Score | Description |
| -------- | -------- |
| Questionable | New L1 |
| Okay | Prominent L1 |
| Safe | More than one prominent L1 |

### 3b. Launch Timeline
Documenting the expected or actual launch date.

The launch date plays an important role in accurately assessing the level of speculation surrounding the points program. The temporal context is essential for several reasons. In cases where only rumors exist or the official launch is repeatedly postponed, the reliability of the project and its points program may be called into question. The launch date helps in gauging whether the project is in its nascent stages or has had time to evolve and address initial challenges.

| Score | Description |
| -------- | -------- |
| Questionable | Non-disclosed |
| Okay | Disclosed |

## 4. KPIs

Key performance indicators are evaluated with focus on four key metrics:
1) **Total Value Locked (TVL)**: Quantifying the aggregate value secured within the project's smart contracts. TVL serves as a key indicator of the economic activity within the project's ecosystem. A high and growing TVL suggests increasing trust and adoption.
2) **Transaction Volume**: Analyzing the frequency and quantity of network transactions. Transaction volume provides insights into how actively the protocol is being interacted with.
3) **User Activity**: Measuring the number of active users engaging with the project over a specified time period. The number of active users is a direct measure of the project's adoption and relevance in the market.
4) **Unique Depositors**: Tracking genuine users interacting with the project's smart contracts. Tracking unique depositors helps distinguish between speculative activity and genuine user engagement, providing a more accurate picture of the project's real user base.

Analyzing the trends in these metrics over time helps in understanding the project's growth trajectory and potential future performance.

| Score | Description |
| -------- | -------- |
| Questionable | Stagnant or declining metrics |
| Okay | Consistently high or growing TVL and expanding active user base |

## 5. Airdrop Specifics

This section scrutinizes the airdrop mechanism, focusing on:
1) **Confirmation Status**: Verifying the airdrop's authenticity and assessing source credibility.
2) **Eligibility Criteria**: Detailing the requisite tasks or conditions for airdrop qualification.
3) **Snapshot Chronology**: Identifying disclosed dates for recording user activity and determining eligibility.

A confirmed airdrop with clear eligibility criteria and a well-defined participation deadline (i.e., an indicative period for on-chain activity snapshots) instills confidence in participants. It assures them that their engagement in specific activities has a tangible potential for reward.

Clear information regarding these components helps mitigate speculation around the airdrop. Speculation, while common in the blockchain space, can lead to unfavorable outcomes for participants if not grounded in verifiable information.

The absence or vagueness of information regarding these components can fuel unwarranted speculation, potentially leading to market distortions and increased risk for participants.

| Score | Description |
| -------- | -------- |
| Questionable | Non-disclosed |
| Okay | Disclosed |

## 6. Community Engagement

We assess the project's social footprint by examining:
1) **Social Media Presence**: Evaluating the frequency and quality of interactions across various platforms.
2) **Community Scale**: Quantifying the project's following across social media channels and community groups.

The assessment of community engagement is crucial in determining the project's transparency, user-care commitment, and overall health of its ecosystem. Active and well-maintained social media accounts indicate a commitment to keeping the community informed and engaged. A reliable Discord and/or Telegram channel with a supportive community demonstrates the project's dedication to addressing user concerns and fostering a collaborative environment. We prioritize natural community growth over artificially inflated numbers. A community flooded with bots or fake accounts is viewed negatively in our scoring system.

| Score | Description |
| -------- | -------- |
| Questionable | Signs of artificial inflation, lack of genuine interaction, or poor community management |
| Okay | Active and authentic social media presence |

## 7. Developer Activity

This section analyses the project's technical vitality and ongoing development efforts. We suggest evaluation of the frequency and quality of code updates and commits, considering frequency of commits over time, distribution of commits across different repositories, nature and significance of the commits (e.g., bug fixes, feature additions, optimizations). The consistency of development activity should be aided by examination of total number of contributors, growth or changes in the developer community over time, comparison of the submission made by the core team against community contributors.

These metric serve as a barometer for the project's development momentum and the team's commitment to continuous improvement.

| Score | Description |
| -------- | -------- |
| Questionable | Infrequent commits or minimal code changes / Small number of contributors |
| Okay | Regular weekly commits by the core team or community contributors |
| Safe | Daily commits by diverse group of active contributors |

## 8. Collaborations and Integrations

This segment explores the project's ecosystem positioning, including:

### 8a. Strategic Alliances
Analyzing partnerships with other projects or companies.

Partnerships serve as indicators of other crypto stakeholders' confidence in the project's Minimum Viable Product and its potential added value to the space. Strong partnerships can signify industry recognition and validation. Strategic alliances often open up new avenues for common growth and profitability, expanding the project's reach and capabilities.

| Score | Description |
| -------- | -------- |
| Questionable | No partnerships |
| Okay | Diverse partnerships |

### 8b. Ecosystem Synergies
Evaluating the project's integration within the broader blockchain ecosystem.

DeFi and CeFi integrations are fundamental for enhancing liquidity and providing easier access to capital. We recommend monitoring closely the opening of lending markets for the project's token, integration with Decentralized Exchanges (DEXs) and creation of pools on yield protocols (e.g., Pendle, Spectra). A higher number of trading and leveraging venues naturally increases the accessibility and confidence in the points program.

| Score | Description |
| -------- | -------- |
| Questionable | Low presence across various trading and yield-generating platforms |
| Okay | Strong integrations |