Arthur Hayes Argues for ‘Points’ System Instead of ICOs for Crypto Fundraising

Due to growing regulatory challenges and concerns surrounding ICOs (Initial Coin Offerings) in the crypto industry, BitMEX CEO Arthur Hayes proposed a crypto ‘points’ system as an alternative on February 9.

Hayes shared his latest idea in a blog post called ‘Points Guard,’ emphasizing the development of sustainable Web3 services. He highlighted it as a novel approach for crypto-backed enterprises to secure funds and enhance engagement.

Crypto Points to Boost Community Engagement

According to Hayes, the crypto points system is now the current bull run’s go-to pseudo-ICO fundraising and user acquisition tool. This is attributed to its amalgamation of ICO and yield farming benefits.

“Points Guard” is an essay on the new pseudo-ICO crypto fundraising and engagement method. If you don’t understand what points are and why they going to be used and abused, read on. https://t.co/fR5ruXX4cT pic.twitter.com/2E2d6yiERh

— Arthur Hayes (@CryptoHayes) February 8, 2024

For context, an ICO (initial coin offering) is a Web3 equivalent of a traditional initial public offering (IPO). It allows millions of retail investors to purchase a piece of a new protocol.

The issue with this system is that regulatory bodies usually label ICOs as ‘security.’ This is because financial authorities view the entire transaction as a contract promising the user profit in the future.

With an ICO, a blockchain protocol can easily get into regulatory battles with government authorities.

Yield farming, on the other hand, rewards users with new token emissions for utilizing the protocol.

Nevertheless, Hayes observed that challenges may arise regarding the finite token supply of digital assets if widespread participation occurs. This could lead to a decrease in the token’s price, diminishing the incentive for sustained usage.

To him, the points system is a better alternative for future Web3 success. This is because it does not function as a contract between the protocol and the user for a tangible reward in the future.

Sharing more insights, Hayes revealed that the points users gather from utilizing a protocol can be converted at the user’s discretion later. This will sidestep any regulatory issues as no tangible reward is promised to the user.

On the other end of the spectrum, points can serve as guerilla marketing. This is because Web3 protocols can easily acquire users willing to earn points from using the service.

Zero Token Emission Schedules

Web3 protocols using a yield farming mechanism are often mandated to release their tokens at pre-scheduled periods. This increases the number of tokens in circulation, forcing the price of individual tokens down.

Points don’t work this way, as no aggressive token emission schedules are to be maintained. According to the BitMEX CEO, this offers much-needed flexibility because the points-to-token ratio can be changed anytime.

Hayes also stated that the points system can only thrive on trust. According to him, the users and the project’s founders must have high trust for the points system to work seamlessly.

Additionally, he pointed out that bad actors will quickly adopt this method when it becomes mainstream. Once they succeed, it will lead to abuse or a breach of trust, which could impact the project’s continued success.

Hayes has been a strong crypto advocate of the industry. The BitMEX CEO, who also serves as Maelstrom’s Chief Information Officer (CIO), gave a bullish projection on the Bitcoin price.

BitMEX founder projects $750,000 to $1 million #Bitcoin price by 2026.

"I think it will be the biggest boom in financial markets we have ever seen in human history."
– Arthur Hayes pic.twitter.com/rFjTn30bzT

— LifPay⚡ (@LifPay) February 5, 2024

He said 1 Bitcoin could be exchanged for between $750,000 to $1 million by 2026.