Tokens Targeted Airdrops
In one of my previous blogs I tried to highlight the importance of the structure of token holders and its impact on token price dynamic. As many, including Vitalik, in the industry later observed, tokens are very much multi-equilibrium game. The price dynamics of a token that enables access to a particular service depends mostly on the demand of users willing to use that service. But users don’t perceive token only as a means to access a particular service. They may treat it as an investment or a store of value and act as passive holders or investors. This holds especially true when the product has not yet been developed and the large majority of investors are not and will not ever be actual users or consumers.
Let’s imagine a working product and tokens being actually “consumed” by users. If token price at a particular moment is matched with user expectations (there is zero fee as Vitalik calls it) they will hold tokens and spend them only for the service they require. But if tokens start appreciating in price over the level users expect or tolerate, they might stop spending them for services and treat them as store of value or in other words act as a passive investor and “hodl” tokens.
Such price dynamics may complicate the life of developers building protocols and creating micro-economies where interactions between users would simply depend on supply and demand without having pricing disturbances that its own volatile currency creates. Vitalik proposed sinks, places where tokens would disappear in order to have more stable token prices and distract users from becoming holders.
Although I don’t see many chances of implementing such system soon I believe the best chance we have in some distant future is to adapt stable tokens such as Dai from MakerDAO for which I have great expectations once being fully functional. If it works right it might completely change the whole AppToken space.
The question becomes how to create a network of engaged users whose main goal is to use services but are not distracted too much by volatile prices. One possible solution is to find a community and reward them only afterwards when they deliver something into the system. Such approach was used at Numerai, a hedge fund that facilitates a massive global community of pseudonymous data scientists to make predictions about future prices. By using such an approach you can omit the speculators and start with a healthy user base who are not that particularly vulnerable to volatile token price.
Another approach is to have a regular crowdsale in order to gain initial capital for development but have a large pool of tokens reserved for future rewards or even better — for future targeted airdrop of tokens. We know mechanism design for the token economy is based on incentivizing users that bring the largest marginal utility to the economy. I believe airdropping might be another important feature when building network effects and is slightly overlooked.
Consider two types of users, one heavily engaged to use services and one not that much. Surely if the first type prevails it enables significantly stronger network effects and attracts additional users. Let say you can identify the best possible users who would bring the most added value to your platform and you find out that they are not inclined to invest in your crowdsale for some reason. I am certain that if you give them some limited amount of free tokens that they can not immediately redeem for cash but only use them on the platform to buy some services, you might engage them for the long term. It’s basically same as with free coupons, but only to users who bring the most added value to the economy and generate greatest network effects.
This is why I am proposing to use token airdrops at a project called Futourist where reviewers will be able to monetize content they create by receiving FTR tokens and businesses could order marketing campaigns by paying with FTR tokens. It’s hard to attract businesses to blockchain based platforms where tokens are exchange for services. But what if businesses are given some amount of tokens for free which they can redeem for service on a platform, without the need to participate on crowdsale or buy tokens on an exchange? I am sure once they realize that token based economies can achieve better results (produce better content since reviewers are finally rewarded) than regular platforms such as Tripadvisor, they will be inclined to further use such service.
The airdrop feature of token models is also aligned with the new crowdfunding model Cofound.it is proposing and marks next step in evolution of crowdsales. Cofound.it believes that token sales as they are structured currently are not aligned with company’s goal to engage end users to utilize tokens for its service, but rather tokens get traded for pure price speculation. This is also one of the reasons Futourist decided to cap maximum investment per user to 10 ETH which should lead to wider distribution of investors and higher probability of attracting actual users rather than big whales speculating on token price. Further, by airdropping some limited amount of tokens to businesses and locking them on the platform for “consumption” makes tokens actually utilized to access a service rather than price speculation.
Targeted airdrop is therefore in my opinion another alternative for achieving an engaged user base who won’t be distracted by and importantly won’t cause price volatility — at least before stability protocols are developed and implemented in AppTokens.
Disclosure: I am advising Futourist on token model
