Incentive Model: Rewards & Referral System

Growing a protocol requires balancing user acquisition with long-term sustainability. This article details the Alto Incentive Model, a system designed to drive usage while ensuring user and protocol interests remain aligned.

Rewards or point systems often reduce initial friction for new users. However, there's no "free lunch". This creates costs for both the protocol and token holders through dilution. Balancing healthy incentives with manageable token inflation is difficult.

How do you achieve balanced incentives that benefit all participants at any time, regardless of the protocol's market or attention share?

Enter the ALTO Incentive Model.

Rewards System: Alto Rewards Options

The ALTO Rewards Options (ARO) is Alto's main incentive to drive adoption and build Protocol Owned Liquidity (POL).

During the initial launch phase, the ARO system will act as a rewards-tracking "points" phase. AROs will be distributed to users for their activity, but they will not be exercisable. This allows users to accumulate rewards and familiarize themselves with the mechanics in a stable environment.

Following the Token Generation Event (TGE), these accumulated AROs will become exercisable, allowing users to purchase ALTO tokens directly from the protocol at a discount to the market price. The protocol will then use the funds from these exercises primarily to deploy deep liquidity for both the DUSD stablecoin and the ALTO governance token.

This model allows the protocol to own its liquidity, freeing it from a reliance on:

• Market Makers
• CEX listings
• Liquidity Providers

This gives Alto a key advantage over other protocols: by deploying this POL, the protocol can maintain deep liquidity with low slippage, essential for the adoption of DUSD. While other protocols are forced into expensive deals with market makers or CEXs, often selling substantial portions of their supply over extended periods, Alto can allocate its tokens directly to its real target: the user.

The ARO system has several key features:

• Natural Price Floor: When the ALTO price drops, the AROs can become "out of the money" and not worth exercising. This reduces token inflation and creates a natural price floor¹
• Expiration: ARO cannot be redeemed indefinitely. This forces users to exercise their options, which prevents a large overhang of unexercised options and allows the protocol to build POL steadily
• Protocol & User alignment: The protocol doesn't give tokens away for free. Instead, its most active users are rewarded with a substantial discount on the token, aligning incentives for long-term success

For full details, read the Alto Reward Options (ARO) documentation and the Introducing Alto article.

Referral System: Revenue Share

ARO's unique structure allows us to build a powerful referral program that directly shares protocol revenue with those who help the protocol grow.

While many DeFi referral programs focus on fee discounts or points, Alto's model enables something different: a broad network of users, ambassadors, and partners can contribute to protocol growth and receive stablecoins for their efforts.

At first, the referral system will be limited to:

• Qualified Pearl Club NFT Holders²
• Top 420 TAP LBP Participants
• Investors
• Beta testers

How does it work?

The system is designed to benefit both sides. Whitelisted users share their referral code. When a referred user exercises their ARO, the referrer gets a percentage of the transfer (e.g., USDC) sent directly to them. The referred user wins by receiving a bigger discount on their own AROs. For referrers, there's no cap on earnings: the more your referred users redeem their ARO, the more you earn.

This revenue-sharing model is the core of Alto's growth strategy. Rather than allocating tokens to marketing agencies, the protocol pays its most effective marketers, its users, directly in stablecoins. This aligns incentives perfectly by rewarding user growth with a share of real revenue, offering a sustainable model that avoids the token inflation common in the industry.

Footnotes

1. The ARO strike price is a discount based on a periodically updated Reference Price (which tracks the market, e.g., weekly), not the live spot price. If the live spot price drops below your strike price, the ARO is "out of the money". Users will not exercise, as it's cheaper to buy on the market. This halt in ARO redemptions reduces token inflation and creates a natural price floor. ↩

2. Anyone who held PCNFT at any point since Oct 18, 2024 until Alto’s Launch in December for at least 3 consecutive months. ↩