Points are an airdrop precursor. They developed through a competitive ‘arms race’ dynamic between protocol founders and users of these protocols/airdrop farmers. They have recently become preferred to conventional airdrops because they give developers far more flexibility and discretion, and allow developers to defer an airdrop for as long as they need in order to sort out sybil issues as well as regulatory concerns.

Airdrops should be thought of as paid user acquisition. Instead of users being paid with cash, they are paid with pseudoequity in a protocol token. They purport to solve the ‘cold start’ problem whereby a protocol is only useful with liquidity. Thus, airdrops incentivize early usage of a protocol and get liquidity running, as users believe they will be compensated in the future for their past efforts. Aidrops basically pull future usage into the present by rewarding market participants in an anticipatory way and getting them to commit economic value to the protocol in anticipation of future rewards.

There are analogies to this in traditional finance. For instance, for certain exchanges, you have similar earned equity schemes where market makers can have the opportunity to earn equity in the exchange based on their proven market making volume. Airdrops are similar, except they are generally open to even more participants, hence the rise of the airdrop farmer.

The problem is of course that airdrops became an arms race between entities that attempted to sybil the protocol, and the protocol engineers, who want “honest” and non-mercenary liquidity. So it’s a never ending loop of sybil resistance mechanisms versus airdrop farmers trying to intuit what constitute “valid” liquidity. Of course the more intricate this arms race becomes, the more insider knowledge can be utilized, since knowledge of the anti-sybil mechanisms can be effectively used to gain an advantage. This means that airdrops frequently suffer from insider information. And because an airdrop is often a one time thing, developers are often compelled to honor the historical usage traits, even if an airdrop has been gamed. But this is rigid and the distribution is frozen in place after the airdrop occurs which means that developer often give out disproportionate rewards to sybillers, and they can’t do anything about it post airdrop even if they discover this historical behavior.

Another problem with airdrops is securities laws. In the US, it’s unclear as to whether an airdrop is sufficient to make a token “not a security” according to the SEC. Many airdrops are now ex-US. In my view, an airdrop alone doesn’t allay the concerns of a token being a security. Some developers want to take a wait and see approach and therefore don’t want to commit to an airdrop before we have more clarity in the US (since the US is still the largest market for crypto).

For all these reasons, the meta changed and developers moved towards airdrop precursors. They accomplish much the same – incentivizing early liquidity – while solving some of the above listed problems with airdrops. They are more mutable, so points can be arbitrarily altered throughout the points gathering process. They aren’t a firm commitment to an airdrop, more of a vague promise, so they don’t necessarily require an airdrop to occur (although users would be disillusioned once some of these points fail to convert to airdrops). And they allow developers to defer an airdrop until they feel comfortable with the anti-sybil dynamics and the security status of the token. Overall, they give developers a lot more flexibility and control, and dont force them to commit to token issuance models that might not make sense. They represent the power shifting back from airdrop farmers or sybilers, to devs, and potentially increase the share of ‘honest’ liquidity on a protocol.

I believe the first points system was Blur, or at least the first major one. Now they are virtually ubiquitous in defi especially. Anywhere where there’s a desire to get early liquidity and solve the cold start problem. Some good additional further reading can be found here: https://archetype.mirror.xyz/bbLSBkiAQY7gpSTzmvhlXgW93QSMx2goojhXrjOSWVg