The Tokenized Future of Rewards

Countless industries have been irrevocably changed by Blockchain technology, and loyalty programs are no exception.

Everyone has encountered loyalty programs in one form or another, from mobile apps to stamps on cards, and soon, that could change further, thanks to Blockchain. Currently, it's estimated that approximately $200 billion in loyalty points are issued annually, while around $50 billion remain unredeemed, in part due to hurdles with existing systems.

One significant inefficiency is that loyalty currencies are often rigid and fragmented, which limits consumer options for redemption and leads to many points going unused.

To address these concerns, tokenization presents novel opportunities by enabling the conversion of loyalty points into blockchain-based, user-controllable tokens. Your digital wallet safeguards points, as opposed to an airline or retailer's application. This allows brands to collaborate on brand network redemption or wallet withdrawals for trade. Token loyalty offers consumers the freedom to manage and utilize their rewards without the typical restrictions of traditional programs, including expiration dates and limited redemption options. Smart contracts and tokens simplify the process for all parties, eliminating the need to monitor complex limits, expirations, or other inconveniences.

This transformation necessitates a new perspective for organizations, providing advantages such as enhanced fraud prevention, improved consumer engagement, and streamlined operations. Additionally, a blockchain-based loyalty solution streamlines and automates the monitoring of rewards between partners, eradicating the necessity for laborious reconciliation procedures. Fraud is easier to identify and prevent because the ledger records each token transaction.

In a tokenized system, consumers can sell their reward tokens to others who value the brand's benefits. For example, if loyalty tokens are issued on Ethereum as ERC-20 tokens or the Onyx Ledger, they can be traded on DeFi platforms like Uniswap, providing customers with far greater flexibility in how they redeem or exchange rewards. An open token market ensures that incentives flow to those who value them most. Brands can replace disengaged members with enthusiastic ones, potentially increasing lifetime value without incurring additional marketing expenses.

A transferable loyalty token thus becomes more than a reward; it doubles as a client acquisition tool and a real-time feedback mechanism.

Although there may be benefits, numerous challenges remain, including managing token economics and addressing regulatory issues. Tokenized loyalty programs can create small economies where traditional market forces, such as supply and demand, influence the value of the tokens.

This means that businesses need to carefully manage token economics by establishing mechanisms to maintain value and control supply.

Early evidence suggests that flexibility makes consumers more interested in a product. Being able to sell points or trade them for stablecoins like USDT or USDC has the potential to make loyalty programs not only more engaging but also more appealing. In the past, loyalty was a one-way street. Businesses made the rules, and customers either followed them or missed out. Tokenization changes this by giving customers more freedom and making loyalty a two-way street, where rewards turn into real, practical benefits.

By converting loyalty points into digital tokens, businesses can encourage more people to utilize their rewards and engage with them. More and more brands are attempting to offer rewards in the form of tokens, and customers are becoming increasingly interested in loyalty benefits that they can truly own. In the future, loyalty programs could function more like active online markets than point tables. This change could make customer loyalty into a fluid, liquid ecosystem where value can be easily traded or sold, and loyalty can never be taken for granted once it is earned.

About Chain

Chain is a blockchain infrastructure solution company that has been on a mission to enable a smarter and more connected economy since 2014. Chain offers builders in the Web3 industry services that help streamline the process of developing, and maintaining their blockchain infrastructures. Chain implements a SaaS model for its products that addresses the complexities of overall blockchain management. Chain offers a variety of products such as Ledger, Cloud, and NFTs as a service. Companies who choose to utilize Chain’s services will be able to free up resources for developers and cut costs so that clients can focus on their own products and customer experience. Learn more: https://chain.com.

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