Incentivization is the key to decentralization in web3

Introduction

The web3 space is growing and expanding at an amazing rate. Although challenges like scalability still hurt the underlying blockchain technology, nothing has been able to to stop the progress of web3 systems. There are more defi protocols now than there were few years back. Many users are embracing other decentralized networks like social media, governance and the rest.

One might wonder what the key drivers of growth in web3 systems are. There are basically more than one. But then, a crucial element that has fostered the growth of decentralized systems is incentivization. All decentralized networks have a reward feature which is like a fuel that propels all economic activity on the platform. Remove that fuel, and we are back to web2.

So in this discussion, we want to look at how much importance incentivization plays in all decentralized networks. Then we will see how this could be a strong selling point for marketing decentralized systems against the prevailing web2 models. Founders could also use this feature effectively to retain the growth and excitement of their projects. Lets see.

Attracting and retaining users

Marketing is an essential aspect of every web3 product. Without the users and community, it becomes difficult for any new projects to grow. After launching a new product, web3 founders participate in various promotion and marketing efforts to attract new users to their project. One key, strong point that could be used to promote such a project is incentivization.

Everyone wants to receive rewards for any effort made. Likely, potential new users of a project are already loyal to another product for long. They need a strong reason to leave where they were and migrate to something new. There should be reward for active participation and contribution. This is where incentivization plays a crucial role.

So in promoting a new web3 project, the opportunity for rewards should be a high word to be delivered. The team should help potential new users see the economic opportunities that exist in their new project. When user see that by adding value in any way to the project, they stand a chance of getting rewarded, they would likely want to join. So the value of the token rewards and the mechanisms for dispensing the rewards should be clearly spelt out in the promotion efforts.

Not just attracting new users, retaining them is equally important. Many users have left web3 projects that failed to deliver economic rewards for active participation. So the team should try to make sure the promised incentives continue to flow to those that remains active and contributes much value. As long as the incentives are there, users would be retained. They will stay and continue helping the project to thrive.

So both in creating awareness to attract new users to a project and retaining existing users, incentivization is a key tool that teams in web3 projects should utilize effectively. It is like a glue that holds a decentralized project and keeps it from falling apart.

Encouraging participation in governance

Community governance is one key feature of decentralized systems. Instead of having a central body or intermediaries make decisions, everyone in the network has an opportunity to participate in decision-making. One way to get people to participate in decision making is to provide incentives for doing so. Otherwise, few people would be left to do it.

In most projects where the community votes for decisions, they usually have to hold the voting power. This is usually in form of buying and holding the community tokens which gives the power to vote decisions. From this popular model, it is clear that participating in decentralized governance costs the participants something to do so.

Now it would be very difficult to convince users to invest in the community token to vote if there are no rewards for participation. To vote requires significant financial investment. The only reason that many users would agree to make such investment is if there is some form of return on investment. This is where incentivization again plays a crucial role.

Community governance is essential for making decisions and changes to a web3 protocol. It requires many, if not all the users participating. Otherwise, the system would look like a centralized protocol if just few people are participating. But with proper incentivization models, members of a web3 community would not hesitate to participate since they are sure of the rewards.

Motivation to add value in other ways

Apart from participating in community governance, a web3 community usually add value in other ways and these also need to be incentivized. For example, consider some of the following two ways:

• Social engagement: Users often are required to interact with the project publications and updates. Engagement also involves reading articles of the project published in various web2 platforms such as X (formerly Twitter). When users provide this engagement, it creates a buzz around the project when others see that there is massive participation from other users.

In order to generate such massive engagement to project publications, incentivization could be used as a powerful tool. Users could earn tokens depending on how much engagement they generate. This could be in different ways such as number of pageviews made, number of comments, likes and reblogs, how many publications made, etc. All these are ways to engage with the project. Providing an incentive for each activity would be a way to build and sustain interests around the project.

• Resource sharing: Founders also try to leverage the expertise or other assets owned by the community to grow their project. These also should be incentivized. For example, a video hosting project might need storage space for the files users would upload. They could thus encourage users to run nodes for the network where they provide their free storage spaces in return for rewards. This is just an example.

Another example could be technical know-how. A large community of users is likely made up of professionals in various fields. For example there could be blockchain developers who are part of the community. If the project requires such services, they might get it cheaper from the community. In exchange, the users that provide such technical support to the team would earn tokens based on the amount of work done.

There could be many other examples of web3 teams leveraging any valuable contribution from the community. Whether it is through sharing their skills, providing some infrastructure, or doing some other valuable work for the project, sufficient incentivization programs would motivate participants to share their resources without any form of reservation.

Incentivization and tokenomics

Decentralized systems often have a native token which is used to power all economic activity on the platform. Before the launch of any project, a whitepaper or similar documents is published for the public to understand the details of such project. One aspect of the document which is really important is called tokenomics.

Tokenomics is gotten from two words - 'token' and 'economics'. This tokenomics often details how the native token of that project would be minted and distributed at different stages of the project. It is often detailed and users have to go through it to understand everything about the token's economic model.

The tokenomics should contain a clear and comprehensive information about the projects incentivization model. That includes stating all the aspects of the project for which token rewards would be issued. It will also contains details of what stages of the project at which users expect to participate and earn rewards.

When the tokenomics outlines the work and rewards properly, users would be able to get involved in various aspects and try to contribute meaningful value in order to earn the reward associated with them.

Conclusion

Decentralization and incentivization are two core aspects of any web3 systems and they are intertwined. Without incentivization, it would be very difficult to achieve true decentralization. Project founding teams should look into various opportunities to provide incentives and utilize this important feature to grow their project.