A decentralised cashback rewards system using smart contracts on Arbitrum Layer 2 blockchain

Abstract

The retail landscape in Singapore has grown increasingly competitive over the years, with small and medium-sized enterprises (SMEs) facing mounting pressure from rising operational costs while lacking the capital to develop proprietary customer loyalty systems. Existing third-party cashback platforms such as ShopBack, while effective in driving customer retention, impose commission based fees that further erode slim profit margins. Beyond cost, these centralised platforms often suffer from single points of failure, a lack of transparency and reward fragmentation across separated ecosystems that diminishes long term customer engagement. Existing blockchain based loyalty implementations confirm commercial interest in decentralised rewards but remain constrained by permissioned architectures that exclude open merchant participation and retain centralised governance. This final year project proposes ShiokPay, a fully decentralised cashback rewards platform designed to eliminate these limitations for SME merchants and their customers. ShiokPay was designed and implemented using a Web3 architecture deployed on the Arbitrum Layer 2 Ethereum network. Three Solidity smart contracts form the core of the system. ShiokCoin, an ERC-20 rewards token. MerchantRegistry, which manages on-chain merchant onboarding and role based access control (RBAC). Along with MinimalForwarder, which enables gasless customer redemptions via EIP-712 meta-transactions. These contracts are integrated using React for the frontend, decentralised off-chain storage via IPFS and a GraphQL subgraph for real time blockchain transaction indexing. The Arbitrum L2 network was chosen to address Ethereum's scalability and gas fee limitations, while EIP-712 meta- transactions were implemented to remove the requirement for customers to hold cryptocurrency. This lowers the barrier to Web3 adoption in everyday retail environments. System validation was conducted entirely on the Arbitrum Sepolia testnet. A comprehensive test suite of 105 unit and integration test cases achieved a 100% pass rate across all three smart contracts, validating the correctness of RBAC, EIP-712 signature verification, nonce- based replay prevention and the simulated full eight-step merchant and customer lifecycle. Gas cost research evaluation confirmed that all transaction types consistently remain below $0.01, representing an approximately 98% cost reduction compared to equivalent Ethereum L1 operations. This satisfies ShiokPay's financial viability requirement for SME merchants. System latency evaluation confirmed that subgraph indexing updates averaged within seconds with optimistic UI updates reducing perceived end-user latency, meeting retail point- of-sale responsiveness requirements. ShiokPay successfully demonstrates that a permissionless, low-cost and user-friendly decentralised cashback rewards system is both technically feasible and commercially viable. By eliminating centralised intermediaries and covering customer gas fees through the meta-transaction model, ShiokPay provides SME merchants with a transparent, cost-efficient alternative to current cashback platforms. These are done while delivering a frictionless Web3 experience accessible to non-technical consumers.