Who refers the referrers?
Announcing the Spindl on-chain referrals product
Each moment is the fruit of forty thousand years.
-Thomas Wolfe, Look Homeward Angel“Tell them I sent you.”
The word-of-mouth referral system of the IRL analog world of retail stores and handshakes has been blown up by the Internet. The measurability of digital media, made possible by all sorts of hacky URL schemas and front-end code machinery, means the exact point a buyer was made aware of a product can be known (and rewarded). Double-digit billions and percents-of-sale now flow through affiliate programs, powering both retailers like Amazon and publishers like WireCutter.
In the Defi world, referrals and user rewards have emerged as the primary channels for user growth, given both the lack of native Web 3 targetable media and a general disinclination (or inability) of Defi projects to just shovel money at Facebook and Google. The model was pioneered by major Defi player GMX, which currently offers 15% rev-share rebates to the referrer, and 10% rebate rewards to referred traders for their highest volume tier. A crypto-focused publisher like CoinGecko is earning around $400,000 in referral rewards on GMX, from Arbitrum alone. And that’s from a referral link that’s practically buried on their website: a proper call-to-action (targeted to relevant users) would surely earn far more.
How Web 3 referrals differ than regular Internet affiliate models is that they follow the CPV business model: the referrer kickback isn’t a set bounty, or even a fraction of a given sale…it’s typically a percentage of all user revenue forever1. The business of advertisers paying out on lifetime revenue is only possible due to the uniquely global and shared nature of the blockchain: it would be hard to engineer in Web 2, and anyhow there’d be a trust issue with marketers able to shortchange affiliates by undercounting user value.
The blockchain serves as both common database and honesty-enforcing visibility, as well as permissionless transaction layer. CoinGecko doesn’t need to do some custom deal via steak dinners and salespeople to get GMX’s user-growth budget: the decentralized computer handles the bookkeeping and payment (with potentially a bit of help from an attribution system).
Acquisition costs in Web 3, unlike Web 2, aren’t one-time discrete costs for an acquired user: they’re effectively rent you’re paying on that user’s ongoing monetization, either to the referrer ‘landlord’ or the user themselves in the form of rebates. In this sense, Web 3 referral and reward programs resemble conventional loyalty programs more than Google or Facebook ads.
The differences with Web 2 don’t stop there. We’re using the term ‘referrers’ here in the conventional sense of an affiliate marketer, but in the decentralized world of Web 3, everybody is a referrer: the wallet that on-ramped your user, the questing platform that induced someone to try you out, the other game that ran your ad, the Twitter influencer who pumped you. To use the Web 2 word for it, they’re really publishers: the user-facing entities upstream of the app developer who send traffic their way2.
But which of these many upstream sources sent you the user?
Already Web 3 marketers live in a multi-channel world of Tweets and airdrops and rewards programs and Discord posts; the over-worked growth person at your Web 3 project is already trying to decide what works and what doesn’t.
A simple-minded referrals program (like most these days) which takes credit for everyone they touch, can’t measure real user monetization, and can’t be compared to other marketing efforts, is already anachronistic and too basic. That’s fine for the initial home-brewed version built by protocols, but that’s not how a mature user-growth product works.
Another limitation in current referrals products is their inability to incentivize complex on-chain behavior. Referral programs get Sybil-ed (i.e. fraudulently farmed) as much as any crypto rewards program, with attackers doing simple on-chain actions to collect kickbacks. Real measurement is the key to defeating Sybil attacks: by only rewarding real revenue-generating events, or actual protocol usage (e.g. staking so much token for so long), you avoid the easy farming that has plagued crypto for so long.
Together, attribution and measurement correctly credit the right referrer, filter out Sybils, and make sure to incentivize desired user behaviors. Without both attribution and measurement, you’re firing tokens out of cannons and hoping the resulting BOOM! lasts long enough to attract a few real users. It’s worse than Super Bowl ads and about as expensive.
What money Web 3 protocols do have to burn (hopefully fruitfully) on user acquisition is also typically locked up in native tokens on-chain. Happily, Web 3 natives simply don’t have the habit of shoveling money at Google and Facebook; their growth budget is controlled by a DAO, and subject to a governance vote. Thus, any rewards/referrals program must exist natively on-chain and accept WhateverCoin as the native currency. Which is why every Spindl referral campaign, like the one in the UI above, is a smart contract tightly coupled to our attribution product, ready to dole out tightly-measured rewards.
Eventually, it won’t just be crypto influencers and whales earning referral rewards; it’ll be Web publishers, quests, wallets, ad networks and anyone else. The promise of the blockchain is pushing value to the edges, to the actual publishers and creators and developers themselves. By correctly measuring everyone’s contribution to user growth, we can build a media economy much more inline with those Web 3 values of decentralization and transparency.
Technical docs on the on-chain referral system here.
To run a referral campaign yourself: contact@spindl.xyz or DM us here.
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This is too generous, and definitely an overcount. Users who churn out, but then are re-engaged via some other media—a podcast or tweet say—should not be credited to the original referrer from a year ago. The thing that should keep the credit books in order here here is the attribution system, which current affiliate programs totally lack. As Web 3 user acquisition grows more sophisticated and omni-channel, simply giving referrers all credit forever will be increasingly unsustainable.
As a tease—what English majors call foreshadowing—we’re working on a Web 3 native attribution system keyed off wallet ID, that allows wallet-aware publishers to fire off attribution to Spindl, and get paid for their traffic via wallet IDs alone. This avoids the overhead and privacy concerns of Web 2 identifiers altogether. The blockchain should be the common database between Web 3 publisher and advertiser, not transient client-side device state like in Web 2. More on that soon.
Great piece.
I remember when online poker was big for a while, indeed created a pretty big online economy, around referrals earning % of lifetime value. Easier to trace in Web3, to be sure -- and to put into a contract.
Also interesting to pay referrers in a native token, or any token. Can see that alone much better for incentives, and much easier to justify for a growing project than hard USDC.