X2Y2 Twitter Space: The Utility of Invitation Systems in Promoting Web3

Author: X2Y2

Host (X2Y2): @alex_pengfei

Guests:

KaratDAO Co-founder Charles

Debox Core Team FangKuaiJun

Dataverse BD Mu

Alex: I am very pleased to invite all of you here today. The topic is the invitation rebate mechanism, which has actually been used by some previous projects and platforms. So today, I would like to discuss the promotion and application of this mechanism with the guests. Let's start with self-introductions from each guest.

FangKuai.eth: I am from the core team of DevOps and also responsible for operations. I am an old player in NFTs with quite a bit of experience in zeroing out. I participated in X2Y2 back then, so I consider myself an old friend.

Mu: I am from Dataverse and have been in the space for about two to three years. I am a self-proclaimed dog lover and also engage in BD and operations in the NFT industry. I hope to learn more from everyone during this sharing.

Charles Huang: Hello everyone, my name is Charles, and I am the co-founder and CTO of KaratDAO. I am very happy to be here to discuss this topic with you all. I entered the space around this time last year, coming from Web2, where I worked in large companies, and I officially went all in at the beginning of this year.

Alex: It seems everyone has their own stories. Let's focus on the origin of this story at this moment, which is the invitation rebate. My first question is for FangKuaiJun: In the past, which projects have you seen using the invitation rebate mechanism? Is there anything you would like to say about it? How do you think it works?

FangKuai.eth: The invitation rebate is indeed a great topic because it is highly controversial; only with controversy can we discuss some impactful points. The host just asked a good question about which platforms use invitation rebates. Initially, I didn't want to start directly from Web3 because it is still very early, and the leading applications have not yet emerged.

We can look at what is called Web2 or the crypto and blockchain circles, where invitation rebates are most prevalent. Everyone knows that it is mainly the so-called major exchanges, especially the top three exchanges represented by Binance, Huobi, and OKEX. Conversely, we can look at some other platforms that are considered compliant and well-regarded. CoinBase does not have this mechanism. If we think carefully about the differences, why do some major exchanges implement rebates while CoinBase does not? I want to share a small understanding: I believe the essence of trading rebates is somewhat similar to entering a Macau casino, where they might provide you with some initial chips or educate user behavior.

We know that the cost of trial and error in trading is relatively high, but if Binance gives you ten BUSD to experience the thrill of trading, sometimes there are indeed new user gift packs, new user halos, and a very high success rate for new users. It is very likely that through this education, they will become users of Web3 or Web2.5. As a complete newcomer, the first step into Binance is to deposit a few thousand dollars to buy USDT or USDC. This threshold is actually very high, and they may not have learned the entire operational logic yet, so this is my personal view.

Alex: I think you made a great point. FangKuaiJun used exchanges as an example and compared exchanges based in the East or Asia-Pacific region with CoinBase, which is purely North American. I would like to hear the opinions of the other two guests.

Charles Huang: The invitation rebate mechanism is not unique to Web3. It has been around since Web1 or Web2, where many things were spread by word of mouth. Many large companies, like UBER and Meituan, invite a friend in and give you a red envelope; this is the earliest manifestation of invitation rebates. Web3 has many marketplaces that implement invitation rebates or incentive mechanisms. I see many projects that have not fully gone on-chain, and this area is still relatively blank, with great development opportunities.

Mu: Many projects also have invitation rebate mechanisms, such as using invitation codes to mint, which can rebate twenty percent, and the next person using this mint can rebate ten percent. Some NFT projects also use this mechanism. As mentioned earlier about major exchanges, CoinBase may have differences in thinking or strategies between the Asia-Pacific and North American regions. We can see that we are doing major exchanges, or that there are rebate mechanisms rooted in the Asia-Pacific region, while North American products tend to lean more towards product-led growth, focusing more on refining the product, while our operations do more.

Alex: Understood. Everyone is talking about NFTs. We have discussed traditional exchanges and Web2. I want to be more specific: Have you thought about the advantages and disadvantages of invitation rebates? I believe there must be pros and cons, and I would like to hear everyone's analysis.

Mu: I think the rebate mechanism for platforms or project parties can help attract more users, turning some early users or those who want to profit from us into promoters of the project. There may be a motivation for the project itself due to the accumulation of experience. For users, the rebate can be a good incentive mechanism, making the product stickier for users. I think the advantages in this area are quite evident.

Charles Huang: What invitation rebates can do is create a network effect, where word of mouth quickly promotes the product. This is a great operational tool. However, I think there are also some issues with invitation rebates. For example, if the rewards for inviting are very high, the extent to which users help you with sharing depends largely on how much commission your platform offers. If it’s just a few dollars, people may not help you share. At that point, traditional marketing tools, like advertising, may be more suitable.

Alex: So advertising is more about promotion and doing marketing better.

FangKuai.eth: Actually, I want to elaborate on this question because it is very good. Charles also made a great point. I want to offer a slightly different perspective. We know that products have growth curves. Early on, there may be a relatively flat growth, followed by a sudden explosion, which is the so-called word-of-mouth phenomenon, leading to exponential growth, and eventually entering a stable period.

As long as there is a rebate mechanism, it indicates that the product must have a large scale or a large user base; it will definitely not be a small and beautiful product. For example, tools like Notion and Flash will not have rebates because individuals do not play a role. However, products with strong platform effects or network effects, such as exchanges or NFT markets, will have stronger platform effects and Matthew effects because the liquidity of NFTs is more easily exhausted.

What role does trading rebate play in product growth? It is very clear that if a product reaches a stable period, OpenSea doing trading rebates will not be effective, as it has already covered ninety to ninety-five percent of NFT or crypto circle users. A new dog lover entering the space will definitely go to OpenSea first. Such an infrastructure product does not need to implement trading rebates. However, for a startup product, especially one that is somewhat similar to doing vampire attacks or overtaking on a curve, like digital coins, it definitely needs to implement invitation rebates.

Why? If invitation rebates are not implemented, users will not migrate at all, meaning the platform will never have liquidity. I think the essence of invitation rebates is somewhat like project parties issuing tokens on Ethereum. Why do Web3 products and projects grow so quickly? There are two very important reasons: project parties can finance themselves and issue tokens, unlike before when they had to raise funds elsewhere. Here, project parties can fund themselves. If there is an invitation rebate system, the rebate is the platform token they issued, which is at least very useful for a certain period. It’s like stepping on both feet; this system may play a very important role in the early explosive growth phase, but once the project passes this phase, such as an exchange.

Personally, I think Binance's trading rebates are not very useful because the second-tier exchanges may not surpass Huobi. The key is that they did two things right: one is going overseas, and the other is BAYC. These have little to do with trading rebates. On the contrary, the early investments of significant resources, such as giving Bao Er Ye one percent of Binance Coin, now seem like a very wrong decision because the influence was not as great as imagined and did not do much. Including the high rebates given at the beginning.

Undoubtedly, this may have at least made them one of the top three, but transitioning from the top three to the number one position is more about the correct product direction or strategic direction. For a product to achieve rapid early growth, it needs to have a certain voice in the market or let the "wool party" do the data. This is still very effective, but once it wants to become a leading product and truly move forward in the long term, it may require more refinement in product and strategic direction.

Alex: Very well said. It depends on which stage and what goals you have. If your goal is very top-tier, you may still need to do well in all aspects. If you just want to be among the top, the users that trading rebates can capture, such as the "wool party," are very critical, and this is also very practical and effective. I personally hold a reserved attitude and would like to hear more about the guests' views. FangKuaiJun seems to have a more affirmative perspective on this issue, but do you think there are any disadvantages to trading rebates? For example, in my view, is the "wool party" really the initial users of this project? Or can they even be called users? I think this is also a very worth discussing point. What do you think?

FangKuai.eth: Thank you for the host's question. I want to continue by saying why trading rebates become ineffective after a certain point. For example, when it has become a platform-level product, why do trading rebates become ineffective? Now, the real users have already been drained by you. In the early stages, it was not necessary to focus on the distinction between real users or bots. If Binance had a similar mechanism in the very early days, Ethereum did not need to distinguish between knowledgeable users; it had not yet taken off. The rewards given may not have been worth much, and those who came were all geeks, explorers, and pioneers, which were very valuable seed users for the project party, even more precious than domestic institutions. I think giving them some tokens was very correct, as it was like distributing tokens to the most valuable users.

Of course, it doesn't matter what is distributed, just like exchanges can distribute Ethereum, Bitcoin, or USDT.

Early adopters of trading rebates may not have much motivation to pull bots because there was not much money at the time. They might simply feel that it was a win-win situation; the platform was easy to use, and the product was good, so recommending it also had economic returns. However, once it has become a platform-level product, and Binance has firmly established itself in the top tier, creating a Binance captain will not help them crush the competition. The only way to ensure a leading advantage is to get the product and strategic direction right, such as making BSC or integrating more functions, compliance, and so on. I think the rebate is just a tool; it cannot be evaluated as good or bad. Just like UniSwap is a tool for token exchange, we may exchange for many fake tokens or lose on a token, but it still provides such a tool. Trading rebates are methods and tools for operations. Using them appropriately can be very helpful, but using them inappropriately, such as in the later stages when the platform token is already very valuable and most users are already covered, may require breaking out of the circle rather than internal competition among traders. This may be my viewpoint.

Alex: Understood. I think it’s quite interesting. You analyzed the reasons for the eventual ineffectiveness, and the entire path is quite clear. I wonder what Charles thinks about this issue? Besides the benefits mentioned earlier, are there any downsides that cannot be resolved?

Charles Huang: I think the guests just spoke very well. The invitation rebate tool is particularly effective during the cold start phase because our platform is also involved in this area. Many early project parties come to us and ask if we can help them find some qualified users for promotion. We can indeed see that it is particularly applicable in early projects. Of course, there are drawbacks of the "wool party," where many scientists engage in wash trading. To distinguish the "wool party," there are some people who are complete "wool party" members, while others are real users.

Now, many people have not utilized blockchain technology because we can use the data on the blockchain, which is all public. We can see how to determine whether a person is a "wool party" member or a real user through this data. We can filter out higher-quality users and leave them for the project party. This is the long-term direction for the development of invitation rebates; high-quality users will bring higher flows, so it will be a good thing for project parties.

Alex: Therefore, from the perspective of user quality, cold starts are indeed a sharp tool. Once everyone gets used to it, we still need to move from quantitative to qualitative changes. It is impossible to always look for such cheap people to invest or to inflate numbers; we need some real users. I wonder what Mu thinks about this issue? Are there any downsides to invitation rebates or points that have not been discussed?

Mu: My views are similar to those of the two guests. We see that many trading rebates frequently appear in some dog projects. There is indeed a bit of a Ponzi flavor to cold starts. The downside may be that it weakens the project itself, making it unsuitable for product-oriented projects, reducing users' focus on the product itself and the depth of experience, which can lead to a decline.

Of course, I have another question. FangKuaiJun mentioned that if Binance cancels rebates, it would actually have disadvantages for Binance. Although it has become a leading exchange and CEX, much of Binance's profit comes from transaction fees and traders' liquidations. So what would be the consequences if it were canceled? Perhaps All In would attract a large number of customers. The rebate mechanism is a good way to stabilize users after scaling. For product-oriented projects like OpenSea, where we do not need to rely on traffic operations and marketing, rebates are indeed not a very good method.

FangKuai.eth: Because my viewpoint is still product-oriented, what was just said about OpenSea is very interesting. You mean that if OpenSea does not implement rebates, it would not suffer any losses, while if Binance does not, All In might flip. I want to say that we can observe OpenSea; they also encourage trading, just not as overtly as other platforms like X2Y2 or Element. What mechanism do they adopt? It is a more hidden mechanism. For example, what are the requirements for OpenSea's blue checkmark? The trading volume must reach ten billion, which shifts the pressure away from the user side and onto the project side.

Of course, the user side will feel it; if a project does not have a blue checkmark, while another does, the pressure is mainly on the project side to find ways to inflate trading volume. Without inflating volume, there is no blue checkmark, and many things cannot be done. Many NFT analysis tools directly pull OpenSea's blue checkmark data. If it is not considered a blue checkmark, it will be seen as a dog project. OpenSea encourages project parties to do their own work, shifting the pressure onto the project side. Because there are too many small images now, many floor prices are small decimals or two zeros. I see many trading volumes still at tens of thousands, which are definitely inflated by market makers. They encourage market making or volume inflation but do not explicitly state how much to inflate for a direct rebate of one percent or five percent; they shift the pressure onto the project side, which may be a weaker guide, and the integration with the product will be very strong. We know that rebates and products are sometimes quite detached because exchanges can do it, and basically any product can implement so-called invitations.

Of course, rebates must have trading to occur, but as an invitation reward, it is something that all products can implement.

The trading volume of OpenSea is deeply tied to the product itself because trading volume is one of the inherent identifiers within a collection. Moreover, the pressure is placed on the project side, which can also serve as a reminder to users. This is a very win-win action, helping users identify dog projects while also benefiting OpenSea itself, which needs to charge a 2.5% fee, thus earning money. The volume inflated by the project party serves as an explanation for investments and VCs. It just does not explicitly give rebates to any individual but achieves this effect through a very deep integration with the product.

Speaking of Binance, my personal view is that most of its revenue actually comes from contracts, as spot trading has even been driven to zero fees. Binance has also reduced fees for several trading pairs, with Ethereum and Bitcoin being the mainstream ones. Everyone is in this internal competition, and exchanges have reduced fees to zero. All In will soon follow suit, so this reflects a similar reasoning.

Whether to cancel or not, this is an internal competition market. There are too many exchanges, and if revenue changes slightly, everyone will migrate. However, this migrating portion may not be mainstream; it is definitely a large trader. Large traders often focus on more than just fees. From my personal experience, they pay attention to many things, such as the security you evaluate, and I even know that some large traders pay attention to the responsiveness of your platform's customer service, etc. It may not be something that just a few points of rebates can solve; it is likely a more complex issue. When we usually buy a few Ethereum or just a fraction of Bitcoin, we are very concerned, but it is unlikely to face platform-level products.

Charles Huang: Earlier, we compared Binance, an established exchange, with the NFT marketplace X2Y2. One significant difference is that exchanges have KYC identity verification, while a problem that Web3 projects have not solved is identity verification. How to verify whether someone is a "wool party" member or not? With KYC, the cost of wash trading will significantly increase. This is why I believe exchanges like Binance are still willing to retain such rebate systems after becoming top-tier. For Web3 projects, if identity verification is not resolved, I think many projects will easily be washed.

Alex: I think everyone has made good points. The main difference is that some guests assume that if Binance cancels later, there will be other competition. NFT OpenSea uses other methods to provide indirect incentives. You will understand that wash trading was not absent; in the early market, thirty percent was wash trading, which was to provide liquidity for people to trade. Including Zhao Changpeng, when Binance first started, liquidity was also relatively poor. To attract others, he even acted as customer service and chatted with those people. All of this is very normal; when a platform initially lacks liquidity, liquidity is crucial. How to create liquidity? It is nothing more than the methods mentioned earlier. Invitation rebates are a method born out of a lack of liquidity. Once everyone becomes stronger, do we still need this? It depends on personal views. If without this, your liquidity is still strong, for example, if liquidity drops from one hundred to ninety-five, it does not matter. However, if liquidity was only sixty to begin with, barely surviving, and then it drops to forty after cancellation, it could severely impact your ecosystem. In this case, there is no need to cancel.

I think it relates to the project itself or the volume of wash trading. This is my personal view. This discussion has been quite in-depth. I will ask the next question, which I direct to Mu. Earlier, we talked about trading wash trading. Do you think the expanded users are more "wool party" members or are these users more likely to be real users? If the expanded users are real users, do you think there are ways to eliminate "wool party" members? Or are there ways to improve the current traditional invitation rebate mechanism?

Mu: It is very difficult to completely distinguish between "wool party" members and deep users. In the past, everyone was retail investors or speculators, and they were more speculators. If there is no good system or an attractive way, it may be impossible to even talk about having a high stickiness user; perhaps no one would care about your project.

In the Web3 space, many user volume data is very virtual. If you cannot attract people, how can you talk about users? My opinion is that there is no clear distinction between the two; I am just a "wool party" member or I came here just for your product and do not want anything else. I think that is unlikely. You need to refine your product and attract people with mechanisms. If your product can directly attract them, won’t they become your users?

If your project is one without potential, it is unlikely to find deep users, whether through rebates or otherwise. In my view, do not give them too clear a definition because everyone is a speculator. Before coming, they may not understand your project. If your project gets better and the incentive mechanism or user experience improves, they will become your deep users.

Alex: Is there any way to improve the current relatively imperfect and crude invitation rebate? How can it be improved?

Mu: We can weaken the rebates because this is something that traditional models have, and it is not unique to this circle. X2Y2 may be a proprietary term in this circle. We can add some fun gameplay that can be combined with our project, such as S2N, X2N, setting the user threshold lower, making it easier for users to be attracted to our project.

The rebate system may benefit more influential KOLs. For ordinary users, it is difficult to achieve good economic returns through rebates because the circle of people they can influence is so small. It may be a better way for smaller users or those without many fans or who are not influencers.

Alex: Understood. It is more about whether we can introduce some new gameplay and mechanisms to engage people in this matter, rather than just focusing on these "wool." This will increase the difficulty. What does FangKuaiJun think about this issue? Do you think there are better solutions for the current rebate mechanism? Or do you want to criticize it?

FangKuai.eth: I think what Mu just said is particularly reasonable. Currently, this mechanism is really not just a chicken rib issue for ordinary people; it is more of a tasteless issue, with ninety-nine percent of the functionality being unused. However, it is indeed crucial for KOLs. Because now, if we just browse around, many KOLs will hang a link and say this is their own exclusive link.

I still hold the viewpoint that this is a tool, but is there a better way to achieve it? There are indeed many explorations being done now. For example, it may be more straightforward to not give KOLs so-called recommendations or promotional rebate rewards but to directly lower the fees or cover all fees directly in the form of platform tokens. For truly active users with real trading intentions, I think this is also a very good way and exploration. Personally, I do not support that everything ultimately goes to KOLs.

Alex: So you hope to make it more Web3, allowing everyone to earn some money through their influence, rather than letting KOLs enjoy it exclusively.

FangKuai.eth: Why do I say this is particularly good? Because everyone can find that it is a critique of Binance, although I think Binance is excellent. If you look at the design mechanism of this rebate, most of them are like this: for an ordinary user, there will be a promotional link that may give others a twenty percent discount. If it is a KOL, it may give a thirty percent discount. If it is a very powerful top KOL, it may give a forty to fifty percent discount.

This is inherently a very strong Matthew effect. Those who can invite more people will have a lower discount rate, leading to more people using this link, creating a positive cycle. Ordinary people cannot invite anyone to begin with, and the rate is low, so no one will use your link. However, this mechanism itself also has serious issues. For example, everyone knows that Weibo has people like Xiao Xia, and everyone has already gone over to use it. Why doesn’t Binance save that money and directly create an official promotional link that gives everyone a thirty percent discount? I personally feel that this mechanism indeed has problems.

Alex: I actually think this mechanism itself has a certain degree of cheating. Establishing this mechanism certainly means using it for oneself first, creating a small account and then trading with that small account. Unless I am a lazy person, I actually have one, but I have not invited my own small account, and that account is still paying a hundred percent fee. What does Charles think? Where can the fee structure be improved?

Charles Huang: Mu mentioned tasks earlier. The invitation rebate can be divided into three levels: the first is pure invitation rebates. If we increase the difficulty, we need to do some tasks, but I think this will still have many "wool party" members. From a Web2 perspective, there have been many apps that had wash trading for points. I think the best way is to integrate identity verification into this. Because I always believe that if you push the most desired things to users, the conversion rate will be the highest. NFTs are (46:25) and then push to users. I think this is the highest conversion rate and the greatest charm of blockchain: it can analyze all on-chain data to see if this person has played these things before and whether they are interested in this direction. If we promote and implement invitation rebates based on this foundation, project parties should try this path more in the future.

Alex: Understood. You mentioned that project parties or platforms should try to do this more aggressively. I feel that everyone is currently in a mutual critique. Earlier, users actually asked X2Y2 why it does not implement invitation rebates. The fundamental reason is that there are only so many NFT users. Ultimately, invitation rebates are just discounts for everyone, but can they really invite new users? Are they really users from Web3 or from Web2? This is actually a bug, which is why we did not think about doing this at that time. Today, we are also learning and discussing with the guests.

Besides invitation rebates, do you think there are better promotional methods? What are some better ways to provide suggestions to the platform during cold starts?

Charles Huang: I still believe in how to segment the user groups you want through a large amount of blockchain data and then do rebates or incentives targeted at those groups.

Because doing advertising and marketing, if we look at Web2, traditional companies like Google need to accumulate a large user base to do these things and to do advertising placements. However, I think one of the greatest charms of Web3 is that all data is public. In fact, when doing a new project, you can refer to and directly use the data that is already on-chain, and then use this data to help you do targeted placements and targeted incentives. I believe the conversion rate will be relatively high.

Currently, there is a lack of such tools on-chain. There is no good tool to conveniently help project parties convert, so everyone tends to do broader rebate mechanisms or placement mechanisms. Many DID tracks are becoming increasingly popular, and everyone will have various credentials. In fact, we can better locate what kind of users these wallets are based on these credentials and then do targeted airdrops and targeted incentives to achieve better results. Because if you are selling shoes, you must push this pair of shoes to people who are interested in buying shoes; this will lead to a higher conversion rate.

Alex: That makes a lot of sense. I wonder if FangKuaiJun and Mu have anything to add?

FangKuai.eth: The host's question is also excellent. It is precisely because everyone is now in a bear market, and it is all about mutual cuts of existing users. I often participate in AMAs, and it is always the same old acquaintances. The host's question is about the invitation rebate mechanism or whether there are more effective mechanisms to bring in a large number of Web2 billion-level users. My viewpoint is that invitation rebates achieve a very rapid growth curve for cold starts, but the growth curve is definitely targeted at the internal circle. Invitation rebates can only attract Web3 internal users. Lowering fees can kill all other brands, but it will only attract internal users. Because what is most important for external users entering Web3? The most important thing is that the learning cost is very high, and they need to understand many things and concepts while also bearing a very large responsibility. I personally believe there are at least two points: now everyone should know that the true popularization of the internet has actually gone through two waves, and the second wave may be more important, which is the mobile internet app side, truly penetrating into third-world countries in Asia, Africa, and Latin America, as well as the vast western regions. I think Web3 is the same.

From DFT to NFT, you can see that everything is web-based, which is very unfavorable for popularization. Stephen was actually the first to explode in the mobile Web3 application. Personally, including what I do at DBox, is to promote Web3 on the mobile side because there are many advantages.

For people in remote areas, getting a computer can be quite troublesome. This is also the strategy of Pinduoduo. If you start by doing it through the web, it will definitely not work. Everyone needs to pay attention to building mobile products.

Products must be made as simple and concise as possible. Here, I may want to mention a few examples. For example, DeFi products are inherently difficult to use, and there are some good products and breakout products. UniSwap, from a product perspective, is a very genius design, even leading exchanges like Binance by a hundred years. It allows a sixty-year-old lady to know what she wants to do as soon as she enters because she only has a swap button. If Ethereum did not have an authorization mechanism, it could be made even simpler. I think we need to reduce the user education cost, but this is also Stephen's advantage. One authorization here and another authorization there, and if not managed well, it will annoy users with pop-ups every day. I think we can learn from Web2, supporting one-click mobile logins, and requiring users to complete tasks. Everyone can learn from this. It can allow people to enter first, and regarding how to persuade them to authorize, we can teach them through task forms.

Mu: To summarize, as FangKuaiJun just mentioned, we hope the product is as simple as possible, allowing users to understand what our product does. Earlier, it was mentioned that there might be many signatures, which are cumbersome accounts. The DID and SPT mentioned earlier, I believe will solve some current loopholes in the future, but currently, SPT is not that perfect. In fact, the X1 model is poorly executed in the circle, and everyone is exploring. The project party itself still needs to refine its product to attract as many users as possible. Just like I mentioned earlier, some "wool party" members or newcomers may be attracted by the product or the rebate mechanism and may stay in your project or help you promote it. This is my small summary.

Alex: Everyone has spoken quite comprehensively today, basically extending the invitation rebate to other marketing methods, discussing the advantages and disadvantages, including whether there are other methods to help improve. We have analyzed the impact of these mechanisms in different stages, such as the early cold start phase and the mid-phase of becoming a leading product, discussing both positive and negative impacts. Therefore, it is difficult to find new angles for discussion. I feel that everyone is quite capable of product development and has practical marketing operational experience.

Today's Space discussion is about to conclude. We will stop here for now. I would like to thank the three guests for their wonderful sharing, which has taught us about invitation rebates and other marketing cold knowledge. I hope everyone can have more thoughts in their future projects or as members of Web3, and I also hope it will benefit the entire ecosystem.