The Emerging DAODrop Trend
There is a new type of airdrop emerging; the DAODrop. Airdrops are the single most important marketing tool at the disposal of crypto teams today and they are no longer just for retail. More infrastructure and middleware projects are getting on the airdrop train by offering airdrops as a way to reward and incentivize continued development by other protocol & application developers leveraging their infrastructure.
In this piece, I’m going to talk about:
- How airdrops got started
- The current (infected) state of them
- What are DAODrops
- Future opportunities for DAODrops
Buying beers with Auroracoin?
Airdrops have been around for a long time, the first one goes all the way back to 2014 when a project called Auroracoin tried to bootstrap a new national currency in Iceland by giving all citizens who signed up free tokens. It wasn’t very effective for moving citizens off of the Króna, you still have to use old-fashioned Krónas to buy a beer but it did spark a totally new marketing tactic for project teams seeking to attract users of their new cryptocurrency.
Throughout the late 2010’s a few more teams leveraged them to mild success. Decred had an airdrop in 2015 that attracted a few thousand users and Stellar sought to give away billions of Lumens on multiple occasions. The airdrop marketing tactic had been growing a bit stale but that all changed in the fateful summer of 2020 — Defi Summer.
In 2020 Uniswap kicked off the airdrop frenzy with the first retroactive airdrop. Unlike prior airdrops which were about driving adoption, Uniswap’s airdrop was a reward for those that had already used the app; in this case contributed liquidity or had done a swap (or owned Unisocks!). Uniswap set the trend in motion and now airdrops have come to be expected for any sort of consumer or Defi application that is attempting to drive early active participation from a community.
Despite the excitement surrounding airdrops, I think it is worth acknowledging that in their current form, retail airdrops are probably not that effective for driving long-term sustained growth. They are frequently farmed and dumped, lapsed ad tech exec Antonio Garcia Martinez put together a deep analysis of Blur’s airdrop even coining the bacteria plot pattern. The pattern describes the programmatic creation of lots of wallet IDs and the inevitable post-drop transfer of gains to a single wallet to dump the token. Antonio does an amazing job bringing decades of web2 ad tech knowledge to web3 so project teams can truly understand the return on airdrop investment which looks ugly. Worth giving it a read to understand where we are going with airdrops. We aren’t here to go super deep on the challenges with retail airdrops, that is for a different day.
The New Airdrop on the Block
Infrastructure projects, not to be left out by their consumer brethren have gotten into the airdrop game by rewarding project teams that leverage their infrastructure; introducing the DAOdrop. My working definition of a DAODrop is an airdrop administered by one DAO/Application/Protocol to another. You’ll note that not all of the recipients are going to be DAOs and I get that but DAODrop is way more catchy than my first name of P2P Airdrops so I’m sticking with DAODrop.
In order for infrastructure to be successful, they need the applications on top of it to be successful, by incentivizing top teams with airdrops and providing them with additional capital to build, they increase the likelihood of project success, driving a bit of a flywheel.
The first iteration of DAODrops was ecosystem funds or in the case of Optimism, the creation of retroactive public goods funding. These type of “grants” programs have been good but airdrops are an excellent marketing mechanism and hearing about the free money being rewarded to your favorite project gets more people talking than a future grant. Using marketing parlance, airdrops or DAODrops are excellent for driving “earned media”.
The logic for DAODrops is relatively straightforward, reward the teams that adopt your infrastructure and encourage them to stick around and continue building on it. An added benefit of DAODrops is that infrastructure projects need informed governance participants and placing tokens into the treasuries of the teams actually building on the underlying infra should help to drive that. Two of the most recent examples of P2P airdrops include Arbirtrum and Collab.Land.
Arbitrum’s DAODrop was targeted at app developers dedicating 130M or 1.3% of the supply to reward the apps that already contributed to the robustness of the roll-up ecosystem. Arbitrum evaluated qualitative and quantitative metrics including when the protocol launched, whether it was native or multichain, how much TVL, activity, transaction volume, value of transactions it had, as well as the consistency of maintaining those metrics. Protocols were only eligible for the airdrop if they had a governance token controlling the project treasury, this was designed to localize the governance so that each sub-community on Arbitrum could determine what was best for their contribution to the community aka accountability. The airdrop acts as both a reward for app developers and potentially their users along with a way to encourage long-term loyalty to the underlying infrastructure. Lattice portfolio company Galxe received 2.3M ARB and is already considering deploying their On Chain Achievement Tokens (OATS) on Arbitrum and using part of the airdrop to cover gas, this will all go to governance vote only increasing accountability.
The $ARB DAODrop represents meaningful non-dilutive capital for these teams to further their growth and continued expansion on Arbitrum. Treasure, the largest recipient was able to pad their treasury with 8M $ARB with a market value of over $9M (3x their seed round!). The above image is another good example of the earned media from DAOdrops, TreasureDAO published it to its Twitter following of over 130K. [See $ARB DAOdrop Rewards].
Another recent example of a DAODrop was conducted by web3 discord bot provider Collab.Land. Beyond consumer airdrops and Patron Airdops, The Collab.Land team rewarded the top 100 communities on Collab.Land with 15% of the token supply based on the number of wallets connected, longevity, and activity on collab.land.
What is novel about Collab’s approach and different from Arbitrum is that these airdrops are not rewarded automatically. Each community is required to submit a proposal within the Collab discord community server to receive the DAODrop (remember accountability!).
Importantly the DAODrop proposal requires that communities explicitly call out how the airdrop will incentivize the usage and adoption of Collab.Land. Already nearly 70 teams have started the proposal process. As an example, Lattice portfolio company Cyberconnect is considering the $COLLAB Airdrop to 1. Incentivize development of Cyberconnect x collab.land integration 2. Airdrop to the Cyberconnect Community 3. Pad Treasury Reserve.
The Future of DAODrops
I believe we are just getting started with DAODrops and I would expect protocol teams to continue to iterate and improve on these initial versions. A few areas of DAODrops to be explored:
In the previous examples, the airdrop is not necessarily tied to the actual usage of the token. In the future, the airdrop could be hard-coded to only be used for consumptive purposes. In the same way, AWS and GCP give out free credits to startups, project teams may give out consumptive-only airdrops as a way to further adoption of their protocol.
Performance Incentivized DAODrops
In the case of Arbitrum and Collab.Land, both airdrops were conferred based on prior performance but a future iteration could be tied to ongoing performance. For example, a base Arbitrum airdrop would garner 1M tokens but if the application hits a certain threshold (e.g.TVL) they unlock a larger airdrop allocation. This would ensure teams are properly incentivized to keep users on Arbitrum.
The hackathon is one of the most popular forms of marketing for infrastructure-related teams and large prizes are typically put out in the native token or in USD if the infrastructure does not have a live token yet. Potential airdrops is one more reason for a team or individual to consider participation in an upcoming airdrop. Likely not as valuable as other forms of airdrops but a reason for developers to continue to participate.
If you are exploring a DAODrop or just want to talk about your latest crypto project, we’d love to hear from you at Lattice — firstname.lastname@example.org