Unmasking The Dark Truth About Crypto Airdrops
and why you should think twice before adopting the airdrop strategy
Airdrops are akin to handing out free candy at a carnival — everyone loves free stuff, right? We experienced this first hand with our CPT token a few years ago. The airdrop generated significant buzz, attracted a surge of new users to our platform, and temporarily boosted our traffic. It felt like a major victory at the time — Tariq
Tariq Khan — a core teammate at Cryptopie — narrated how he spent the last 5 years navigating the world of cryptocurrency and was privileged to partake in the defi boom and ICO craze.
While airdrops have been the go-to strategy for driving awareness, engagement, and network effects in crypto, it’s also been the silent parasite chewing to crumble many web3 brands.
You might be wondering how such an effective strategy can affect crypto brands
Well, in another interview with Tim Morris, the CEO of ForexMT4Indicators, he recounted how he saw this play out first-hand when he first launched his crypto project.
You know that exhilarating feeling where you can’t stop smiling or thinking about how your efforts are paying off with tangible results to show for it? it’s quite sweet, huh
For Tim, it was the soft thumbs he felt beneath his chest as a flood of users gushed into his community, eager to receive their tokens. Looking at his large community, a proud smile flashed across his face, shoulders squared.
Everything seemed perfect, but the project failed. The massive hype disappeared once the tokens were distributed and that was just the beginning.
Soon enough, a steep sell-off of the airdropped tokens negatively impacted the token’s price and overall market perception.
In Tim’s words
I saw firsthand how this could harm the project’s reputation and deter serious investors. It’s like giving away free samples at a store — great for immediate traffic but not necessarily for long-term loyalty.
It’s just like Dr. Xu buttressed in her paper;
The long-term impact of airdrops is mixed. While some airdrops succeed in building a loyal user base and increasing the token’s utility, others result in temporary spikes in activity followed by a decline as users sell off their free tokens.
One of the biggest takeaways from Tim’s experience is that most of the people who flock to a project during an airdrop campaign are just there for the free tokens with no intention of engaging long-term.
That’s why implementing the airdrop strategy will crumble crypto brands with a wicked smirk if special attention isn’t given to targeting.
I was in talks with Matt Webb (the co-founder of Wevr.ai and a crypto analyst) some days back and he shared how airdrops tend to harm the long-term success of a project.
There is always a massive inflow of user traffic and Sybil farmers who farm to dump the coins whenever a project publicly declares “airdrop.”
According to Matt, this behavior creates significant sell pressure without corresponding demand, leading to a continued decline in the coin’s value over time and ultimately creating a snowball effect where the price continues to go downward.
However, airdrops can prove effective if done right. Take Uniswap’s airdrop for example, it was unexpected(which gave no room to Sybil farmers) and helped build a community of super fans.
This success was possible because they carefully targeted and crafted an efficient airdrop campaign.
Detailed targeting helps identify the ideal people likely to contribute value to the ecosystem, rather than those seeking quick profits.
It also guides the airdrop campaign and informs the communication strategy.
aha! That reminds me. During the interview with Tariq, he mentioned an approach he found to be most helpful when setting up the airdrop campaign — Setting vesting schedules.
Tariq explained it as a process where you release the tokens in phases. This encourages recipients to stay engaged with the project over time, promoting sustained interest and involvement.
While going through various research papers and interviews with industry experts, I realized that when detailed targeting and carefully designed strategies that outlay the buyer’s journey aren’t put in place, a fall is imminent
And the following are inevitable
- Dilution of value
- Misaligned incentives
- De-utilized Long-term tokens
- Irrational market behaviour
- Sybil attacks
let’s swiftly brush on the severity of these effects, shall we? Great
Dilution of Value
Gans argues that airdrops can dilute the value of existing tokens. When new tokens are distributed for free, the overall supply increases, potentially reducing the value of each token if demand does not increase correspondingly.
Misaligned Incentives:
While the goal is to attract genuine participants and possibly onboard some to engage and support the project, the high percentage interested in “cash and grab” can affect the community buildup and long-term objectives.
De-utilized Long-Term Tokens:
When projects release tokens without a clear use case, it might increase user activity for a while but it is followed by a quick fall in the Market value perception
Irrational Market Behavior:
Xu’s paper identifies the phenomenon of “airdrop dumping,” where recipients quickly liquidate their tokens, leading to price drops and market instability
Sybil Attacks:
This is when a user creates multiple fake identities to manipulate the system, thankfully tools like Nansen have been helping projects like Arbitrum and LayerZero with sybil detection using on-chain
Oh, I hope you haven’t forgotten Tim. Excellent.
So after that experience with his first project, he adopted a tiered airdrop system in his subsequent ones where users get rewarded not just for signing up but for participating in meaningful activities like engaging in community discussions, contributing to development, or holding tokens for a certain period.
It’s kinda like taking them on a mini buyer’s journey till they get invested in the project and climb up the participation ladder that they can’t turn back even after receiving the airdrop.
This helps not only to filter “airdrop hunters” but also to create a more engaged and invested community.
Another approach Tim took was to collaborate with established crypto influencers and platforms to help attract his targeted audience who will be genuinely interested in his project’s goals.
This made the airdrop feel more like an invitation to be part of a growing ecosystem rather than just a free giveaway.
Okay, now we’ve got to cap this
The “airdrop strategy” can be a double-edged sword or a high dose of stimulants, great for that immediate rush and surge of users but not necessarily the best for a long-term strategy.
Unless you carefully craft an airdrop campaign that strategically moves your ideal users to become strong advocates.
Cheers from my screen to yours!
