5 Minutes to Understand the On-Chain Operation Incentive Platform RabbitHole

Source: LeftOfCenter

The booming DeFi liquidity mining has led to a significant increase in on-chain users and capital scale, even allowing DeFi to start breaking out of its niche, proving the importance of incentives to some extent, especially in the high-return, high-risk crypto finance industry. No matter how difficult on-chain operations are, how high the friction costs are, or how expensive the gas fees are, as long as the incentives are sufficiently in place, those early DeFi users have a strong motivation to participate in these businesses.

Of course, for an ecosystem that wants to develop in the long term, it is not only important to have sufficient willingness to allocate a considerable portion of incentives to early users, but more importantly, such incentive policies must have long-term value, meaning that incentives must be tied to the long-term development goals of the ecosystem. This is also the key and core to judging whether a mining mechanism has long-term value and can ultimately reflect in the token price.

The on-chain activity incentive platform RabbitHole aims to do the same, trying to decompose each decentralized application into multiple different game tasks through gamification thinking, guiding users to interact with blockchain protocols and decentralized applications, increasing their understanding of the decentralized ecosystem and its applications. After completing tasks, users can earn XP tokens and token rewards provided by the project parties.

However, compared to the complex liquidity mining and yield farming, RabbitHole focuses on rewarding basic operational behaviors in DeFi, with the amount of rewarded tokens being fixed and much smaller. The goal of this approach is to expand the number of new DeFi users and ultimately achieve large-scale adoption of DeFi.

In the view of RabbitHole founder Brian Flynn, in the long run, finding effective ways to incentivize users to participate in DeFi governance and infrastructure elements is essential for maintaining the sustainable development of the entire ecosystem.

What is RabbitHole?

In fact, RabbitHole is not a new project. It officially launched its Beta version back in May this year. The founder is Brian Flynn, a former product manager at Dapper Labs, who is a UX designer with a keen interest in NFTs and a passionate "builder" who has been obsessed with LEGO since childhood, continuously exploring how to create new value through token incentive mechanisms.

According to the official description, RabbitHole aims to decompose each decentralized application into game tasks through gamification thinking, guiding users to interact with blockchain protocols and decentralized applications, increasing their understanding of the main functions of decentralized applications. After completing tasks, users can earn RabbitHole system tokens XP and token rewards provided by the project parties.

RabbitHole hopes to guide users to complete a series of on-chain operational tasks through gamification thinking, cultivating DeFi users' usage habits while bringing value to on-chain middleware.

RabbitHole originated from an achievement incentive system called Drip, which Brian Flynn was responsible for during his time at Dapper Labs. By transforming complex on-chain operations into a single quantifiable task challenge, users can unlock corresponding scores for each challenge they complete, which can later be exchanged for tokens used in other use cases.

This time, RabbitHole has launched a new feature called RabbitHole Earn, which allows for the integration of different DeFi projects. The first integrated project is Matcha, where users can unlock corresponding XP token rewards by completing operational tasks on the Matcha platform. Completing all three operational tasks will unlock ZRX tokens (while supplies last).

In other words, the new version not only rewards operational behaviors with the system token XP but also adds native token rewards from the project parties. Compared to the previous single XP token reward, the addition of native token rewards from project parties can more effectively enhance user participation motivation. Especially for projects that already have a certain consensus and market value, their tokens already have stable market value, meaning that users can obtain tokens with stable value by performing a series of simple operations.

At the same time, in the long run, as RabbitHole integrates more projects, it will bring long-term sustainable value to the open finance ecosystem, effectively converting token holders into real DeFi users through gamification mechanisms, and value creation will ultimately be reflected in token prices, meaning that XP tokens will also become increasingly valuable.

It can be said that this mechanism and starting point are a win-win situation for both the participating project parties and RabbitHole itself.

More Integrations and Future Development

The first event integrated with Matcha has concluded, and RabbitHole plans to integrate more DeFi projects.

RabbitHole is actively expanding its integrations with other DeFi communities, currently discussing GnosisDAO and mStable.

On December 2, Brian Flynn published a discussion proposal on the mStable forum, hoping to attract more new users to perform related operations through gamification mechanisms, thereby educating users about mStable's key functions and governance mechanisms, while increasing the market value of mAssets and the usage of MTA.

RabbitHole can use the mStable subgraph to create challenge tasks, allowing users to understand different functions of mStable, including minting, exchanging, storing, and earning, as well as how key parts of the protocol work. For each task completed involving contract functionality, users can earn small amounts of MTA tokens or mAssets.

RabbitHole suggests initially trialing the operation of minting mUSD and then contributing it to SAVE.

Similarly, Brian Flynn also submitted a discussion in the GnosisDAO community, where he proposed an incentive activity, stating that due to Gnosis being a large and complex ecosystem, operational behaviors could be designed based on three core products (Gnosis Protocol, Conditional Tokens, and SAFE) to convert new users.

The activity mechanism is also quite simple. For example, a specific number of GNO tokens could be distributed to the top x users who complete specific tasks, with the exact number determined by community voting. For instance, the community could allocate 0.5% of the current total supply of tokens to RabbitHole activity rewards, with each user receiving a 1/1000 share of the tokens by participating in the activity.

Brian Flynn also proposed integrating Gnosis's conditional token market to improve customer acquisition, for example, triggering a trading market based on the number of users completing that operational behavior. This would incentivize the community to have a greater motivation to recommend Gnosis products to others and further decentralize token distribution.

To prevent abuse, RabbitHole has integrated the social identity network BrightID, which will limit Sybil attacks, meaning that it prevents one person from registering multiple accounts to claim rewards; one identity can only participate in an operational behavior once.

The suggestions made by RabbitHole in Gnosis received a positive response and recognition from community members, including Gnosis CTO Stefan George, who replied, "The gamification mechanism of introducing new users through unlocking task challenges is very cool, and I am willing to support smaller-scale attempts."

However, as one of the founders of a project party, Stefan George clearly has more practical considerations and asked very practical questions, "What is the customer acquisition cost for a project to participate in these incentive activities? And what is the token retention rate for users?" In other words, he is concerned about whether users will immediately sell the tokens after receiving the reward.

Brian Flynn replied that to incentivize users to participate in operations, the customer acquisition cost is usually equal to or slightly higher than the gas fee cost. After integrating payment tools like Superfluid and Sablier, tokens will be distributed to participating users periodically over a certain period, thus avoiding immediate selling after receiving the tokens.

In a test activity conducted with Aave in September this year, RabbitHole guided users to perform lending operations on Aave. However, the rewarded tokens were not Aave tokens but the wrapped token aUSDC within the Aave system. Since holding aUSDC generates a certain interest, most people did not sell the token after obtaining it but continued to hold it, effectively preventing sell-offs and indicating a high token retention rate. This incentive activity also achieved good results, bringing hundreds of new users to Aave.

Financing

Perhaps it is because RabbitHole brought tangible user growth data to Aave in the last collaboration that the product gained the trust of Aave's CEO, who has also become a personal investor in RabbitHole's latest financing round.

In fact, along with this new version and feature release comes a new round of financing.

On December 4, RabbitHole announced the completion of a financing round with undisclosed specific amounts, led by Collab Currency. Besides a series of venture funds such as Slow Ventures, Castle Island Ventures, and freeCo, several prominent individual investors participated, including Synthetix founder Kain Warwick, Synthetix COO Jordan Momtazi, Aave CEO Stani Kulechov, former product lead at Messari Qiao Wang, well-known blockchain blogger Tony Sheng, ConsenSys founder and CEO Joseph Lubin, Volt Capital general partner Imran Khan, PoolTogether CEO Leighton Cusack, and Accomplice partner Ash Egan.