Utility-Before-Incentive Test
Require standalone value before adding tokens, discounts, or cash rewards
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 99%
The utility-before-incentive test asks whether a product creates sufficient value when direct financial motivation is removed. Teams first articulate the functional, emotional, or social benefit that exists independently of token appreciation, discounts, or cash. They then examine organic usage, rewarded usage, and retention after rewards weaken. If new-user growth, asset demand, and existing-user earnings all depend on fresh incentivized participants, the system is fragile: declining liquidity can reverse every reinforcing loop at once. Incentives may still accelerate adoption or share upside, but they should rank behind the product’s core usefulness or experience. The output is a clear judgment about whether rewards amplify genuine value or temporarily conceal its absence.
Origin
The hosts and Peter Yang derived the test from Axie Infinity’s token-dependent growth and generalized it to any company that leads customer acquisition with financial rewards.
Core principles
- 01Financial incentives should be secondary to the core experience.
- 02A product that collapses when rewards disappear lacks durable pull.
- 03Real utility produces value independently of market liquidity.
- 04Speculative growth can create self-reinforcing demand that reverses suddenly.
- 05The underlying product must generate output or experience worth returning for.
How to run it
- 1
Name the standalone value
Describe why a user should choose the product if no token, discount, gift card, or resale upside existed. Make the benefit specific to the customer.
Pro tip Use interviews to verify the value in users’ own language.
Watch out Decentralization or token ownership alone may not constitute a desired outcome.
- 2
Map incentive dependencies
Identify every place where rewards drive acquisition, activity, referrals, asset prices, or retention. Look for loops that depend on continuous new entrants.
Pro tip Diagram what happens to each metric if liquidity or reward value falls by half.
Watch out Interlinked incentives can make a decline cascade through the entire system.
- 3
Compare organic and rewarded cohorts
Measure whether users who arrive for the core utility behave differently from users attracted by money. Examine engagement quality, conversion, and retention.
Pro tip Ask both cohorts what they would do if rewards ended tomorrow.
Watch out Aggregate usage can hide that nearly all growth comes from incentive seekers.
- 4
Reduce or remove the reward
Run a bounded test in which the incentive shrinks, vests, locks up, or disappears. Observe whether the product still attracts and retains users.
Pro tip Protect users from abrupt economic harm when testing changes to a live token system.
Watch out Do not interpret temporary withdrawal effects as the only signal; evaluate sustained behavior.
- 5
Reorder the proposition
Lead with customer value and position financial upside as a secondary benefit. If standalone demand remains weak, improve the product before scaling incentives.
Pro tip Make marketing demonstrate the experience rather than headline the payout.
Watch out Scaling rewards before fixing core value increases the eventual correction.
In the wild
A game attracts users because its tokens and in-game NFTs keep rising in value. New participants increase demand, which raises existing players’ earnings and attracts still more participants. When the broader market falls, rewards shrink, new-user growth slows, and asset prices decline. Because players did not find the game enjoyable without income, retention collapses.
→ The example exposes reward-driven growth as a fragile loop rather than durable product adoption.
A software company offers a gift card as the primary reason to speak with a sales representative. Meetings increase, but most prospects disappear when the offer ends because the conversation was never anchored in a pressing business problem. The company replaces the reward-led pitch with a concrete product outcome and uses small incentives only to reduce scheduling friction.
→ Meeting volume falls while qualified interest and conversion improve.
Common mistakes
Calling paid activity product-market fit
Users responding rationally to a reward do not necessarily value the underlying product.
Assuming liquidity will persist
A model that works only while token prices rise has not addressed the consequences of a market reversal.
Making money the headline
Leading with financial gain attracts users whose loyalty lasts only as long as the gain.
Is it for you?
Best for
It is best for tokenized apps, play-to-earn games, referral programs, and marketing campaigns that lead with monetary incentives.
Not ideal for
It is not ideal for products whose essential purpose is explicitly financial, although even those still require credible underlying utility.
From the transcript
“are tokens the primary reason you should join and use an app or like a secondary or a third reason.”
“money needs to be secondary not primary”
“it's anytime where you are leading with the pure financial incentive then you are just setting yourself up for a crash as soon as that…”
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