How the model works

Points: collected, locked, never cashed out

Points are collected through activity in a programme: shopping, reviews, contributions, whatever that programme’s rules reward. They are never bought, by members or by anyone else.

They are used on rewards or converted into another programme’s points. They are never cashed out. They have no cash value and no traded value, and no market sets a price for them.

Each point is locked to the account of the member who collected it. The ledger knows only three movements: a programme credits a member, a member uses points on a reward, and a member converts their own points from one programme to another. It has no instruction that moves a point from one member to another. ERC-5192, a published standard, shows the same idea in code: once a record is locked, every function that would move it from one account to another must fail.^⁠[1]

Converting your own points

A member can convert their own points from one programme into another programme’s points, at a rate both programmes have agreed and the clearing-house has published before it applies. The 2002 loyalty filing describes the same arrangement, with ratios “set by the Participants and by agreement of the Authorized Issuer and the Points Bank”.^⁠[2]

Example. At a published rate of 5 to 4, 500 points of Programme A become 400 points of Programme B. Programme A debits 500 from the member’s account; Programme B credits 400 to the same member’s account, in the same recorded step. Nothing passes to anyone else. The programmes and the rate are illustrative.

A rate change is published in advance and never applies to a conversion already made. Governance sets out the notice.

Conversion, never transfer

The aim of the model is simplified transmission: points that move between programmes as easily as a member wants, through one secure, governed ledger. Transmission here means one thing only: a member converting their own points into another programme’s points, through the clearing-house. It never means sending points to another person.

Member-to-programme conversion, never person-to-person transfer: that is what keeps the model outside crypto-asset and money-transmission law.

In the European Union, the regulation on markets in crypto-assets says that “Digital assets that cannot be transferred to other holders do not fall within the definition of crypto-assets”, and gives loyalty schemes as its example.^⁠[3] The United Kingdom’s new perimeter guidance leaves out “cryptoassets that can only be redeemed with the issuer and used to acquire goods or services from the issuer”, and warns that “labels will not of themselves be determinative”.^⁠[4] What decides is how points behave, not what they are called.

In the United States, FinCEN’s guidance applies to “the acceptance of currency, funds, or other value that substitutes for currency from one person” and its “transmission” to “another location or person”.^⁠[5] Points that are never cashed out and never pass from one person to another do not substitute for currency. In Canada, FINTRAC’s rules on virtual currency cover value that can be readily exchanged for funds or for another virtual currency;^⁠[6] points that can never be cashed out are not that.

One part needs care of its own. California’s regulator has said that stored value “only redeemable for goods or services provided by the issuer” falls outside its money-transmission rules;^⁠[7] conversion between programmes run by different companies is where a closed programme stops being closed. That is why the clearing-house’s role is fixed in a published rulebook, and why the rules on payments and settlement in each country would be checked by lawyers before anything is built.

The clearing-house

The clearing-house is where conversions are recorded and where programmes settle with each other. The loyalty filing describes a clearing-house that can “settle, convert, credit and debit points between accounts”, using a “settlement point” to value the points of many programmes against one another.^⁠[2]

Each conversion leaves one programme owing another. The clearing-house adds up those amounts across every programme, nets them, and settles the balance on a published timetable, so each programme settles one net figure rather than every conversion separately. For programmes shows a worked example.

The custodian: securing programmes, not members

Programmes post collateral with a custodian: assets, and guarantees from insurers or banks, that stand behind what each programme owes the others. If a programme failed to settle, its collateral would meet what it owed, and the members of the other programmes would keep their points.

The loyalty filing describes points “underwritten using assets and guarantees held by a custodian, relying on actuarial estimates of redemption”.^⁠[2] This model keeps the custodian and narrows its job: the backing secures the programmes’ duties to each other. It does not stand behind any member’s points.

So members hold no claim on the custodian’s assets, receive no yield and see no market price. Their points are rewards, not a share of anything.

That line matters in law. The US Supreme Court’s test asks whether a person “invests his money in a common enterprise” and “is led to expect profits solely from the efforts of the promoter or a third party”.^⁠[8] Members here put in nothing and are promised nothing beyond rewards, so points are not an investment. In the EU, a crypto-asset that “purports to maintain a stable value” by referencing other values is an “asset-referenced token”.^⁠[3] Points here are not pegged to anything the custodian holds, and they are not a stablecoin.

The governed roles, from the 2002 filings

The illiquid-assets filing of 2002 sets out a governed vehicle run by named parties, each answerable for one part: a fund originator, a fund manager, a trustee, a custodian, and a transfer agent and asset registry, with a base risk margin database to set the cost of the guarantees.^{⁠[9]⁠[10]} The loyalty filing adds the clearing-house and its custodian.^⁠[2] This model keeps the seven roles and gives each a job in a points ledger.

The ledger itself

The ledger is permissioned: only admitted parties (the programmes, the clearing-house, the custodian and the auditors) can write to it or read it, and every entry is signed by the party that makes it. The European Data Protection Board says organisations “should favour permissioned blockchains”, and recommends keeping personal data off the chain.^⁠[11]

So the ledger records account numbers and amounts, never names. A member’s personal details stay with their own programme. Data written to a chain may “stay on the blockchain with no practical possibility of deletion or modification”,^⁠[11] so personal data never goes on it in the first place.

Mistakes are corrected by a new, signed entry that reverses them, visible to the auditors. Nothing is erased.

What the model is not

• Not a coin, a currency or a stablecoin.
• Nothing to buy, now or later.
• No wallet to connect and no keys to keep.
• No price, no ticker and no market.
• No yield, no interest and no rising value.
• No transfer from one person to another.