Cryptocurrency projects frequently use airdrops to distribute their tokens. However, recent data indicates that a vast majority, as much as 88%, of such airdropped tokens lose their value within just three months. This unsettling trend underscores aught but the critical gap between short-lived hype and the much-needed long-term sustainability.
A Closer Look at The Numbers
The insights stem from a recent report published on September 18 by DappRadar analyst Sara Gherghelas. According to her research, crypto projects have airdropped over $20 billion worth of tokens since 2017. Yet, 88% of all these tokens shed their value quickly within a few months.
These findings suggest a harsh reality of the crypto space. The promise of free tokens often generates considerable excitement around new projects, creating over-the-top hype, but fails to prop up the token’s value in the longer run. The tokens’ fallen value since the airdrop reflects the challenge of achieving long-term sustainability.
Distribution Is Key
Robert Hoogendoorn, DappRadar’s head of content, noted that the method through which tokens are distributed plays a significant role in a successful airdrop. According to Hoogendoorn, the project’s goal is to reach diamond holders—highly valued holders expected to hold on to the tokens in the long term.
Some of the more successful airdrops have employed phased distribution, while others have chosen a highly targeted approach to limit community sell-off. Despite several success samples, there’s no one-size-fits-all strategy to ensure airdrop success. The right combination of distributions, product-market fit, and token utility is needed.
The First Crypto Airdrop and the Subsequent Journey
It is interesting how far the crypto airdrop concept has come since the first ever recorded crypto airdrop in 2014. The inaugural airdrop was by the Auroracoin project that distributed its native coin, AUR, as an Icelandic alternative to Bitcoin.
Hoogendoorn observed that airdrops tend to be more common during a bull market. Over the years, airdrops have evolved significantly with additional mechanisms such as onchain engagement, social media campaigns, and liquidity provision.
Addressing the Issue of Airdrop Hunting
Nevertheless, Hoogendoorn believes that projects need to pay heed to understanding the user’s onchain activity, trading behavior, and social media reputation better to prevent instances of airdrop hunting. Some projects are using social media activity and engagement and reward platforms to refine their airdrop distribution.
Jackson Denka, CEO of Azura, a DeFi platform, opined that many tokens lose value post-airdrop due to their connections to underperforming protocols. These protocols often lack real adoption and do not generate revenue.
Denka rightly points out that no amount of financial engineering or incentivising users can change the fact that some assets are fundamentally a better investment than others.
Future Trends of Crypto Airdrops
In light of the dwindling value of many airdropped tokens, the future may see a shift towards more initial coin offerings (ICOs), where investors pay to acquire tokens before they are released on the open market. Denka likens such a strategy to an initial public offering (IPO) in the traditional financial world, with crypto tokens in place of company shares.
Liquidity is another critical issue that needs addressing. Kanny Lee, the CEO of SecondSwap, a marketplace for trading locked tokens, believes many airdrops lose value because they release too much liquidity too quickly, leading to a market oversupply of tokens.
However, rewarding users for ongoing activity and using a gradual unlock schedule can help maintain liquidity, as evidenced by two recent successful airdrop examples. The idea is to have users stay engaged and build liquidity progressively.
Lee anticipates a broader adoption of this trend in the future. He says, “Sustainable liquidity should be the main goal of any airdrop design. It is not about how many wallets receive tokens, but how long those tokens stay active in the market.”
To conclude, the imbalance between hype and long-term value, distribution missteps, and liquidity issues have made airdrops less effective than intended. The future of airdrops lies in adoption of more sustainable practices and careful strategising.
