Airdrops have emerged as a fascinating phenomenon that captivates both seasoned crypto enthusiasts and newcomers. Crypto has always been the ground zero for innovation in finance in the last decade, two of the famous token distribution methods are ICO and yield farming. Now that SEC has taken a more aggressive stance towards ICO and yield farming has died down due to decreasing TVL, airdrop has emerged as a solution for token distribution.

In this research article, we embark on a journey through the intricate landscape of airdrops, examining the problems that have surfaced, highlighting innovative solutions, and exploring the multifaceted future of this crypto distribution method. Whether you're an airdrop enthusiast, a protocol developer, or a crypto investor, this article aims to provide an exhaustive exploration of the trajectory of airdrops and their potential impact on the crypto ecosystem.

The Airdrop Resurgence: Unearthing the Challenges

Airdrops as a marketing tool can be traced back to methods like PayPal's referral program, which rewarded both new and existing users with cash incentives for joining and referring others. This tactic was incredibly effective in rapidly expanding PayPal's user base.

Similar strategies have been employed outside of finance, such as consumer goods companies distributing free product samples. These traditional methods share the same goal with crypto airdrops: to quickly build a customer base by distributing free value.

Airdrops in crypto is a marketing strategy used by blockchain projects to distribute tokens to a large number of people. The tokens are usually distributed for free or in exchange for performing certain tasks, such as doing meaningful transactions within the protocol. Airdrops are used to create awareness about the project and to incentivize people to use the project's platform or services.

Airdrops can be beneficial for both the project and the users. The project can gain more users and have the chance to decentralize their project. Some categorize airdrop as a dividend for being loyal to a protocol while some see it as a mercenary attack on an established protocol. Either way, current airdrop distribution is plagued by problems such as diluting the token's value and attracting the wrong users who are not interested in the project's goals

Airdrop Farmers and Fairness Concerns: Balancing Protocols and Users

Airdrop farming is a practice where individuals speculate on potential airdrops and employ intricate strategies to maximize their rewards. They often manage numerous wallets and deploy various tactics to siphon as much of the airdrop supply as possible for themselves. Sometimes go as far as buying old wallets and social media accounts to sybil the project.

Beyond airdrop farmers and Sybil accounts, a broader issue revolves around the fairness of airdrop distributions. Airdrops have the potential to create sticky customers and incentivize users with even minimal token holdings. However, they also inadvertently foster an industry of airdrop speculators, where the rewards often flow disproportionately to the most strategic participants.

This imbalance raises ethical questions about the distribution of tokens and the overall impact on the crypto ecosystem. Is it equitable that a significant portion of airdrop tokens ends up concentrated in the hands of a few, while smaller participants receive mere crumbs? Striking a balance between incentivizing user engagement and ensuring fairness for both protocols and users is a complex task. To understand this dynamics let’s analyze past airdrop

Past Airdrops: How did it go?

Let’s go back in time and pick some examples on past airdrop for further analysis

Arbitrum and Optimism

Arbitrum and Optimism are Layer 2 building on Ethereum

Arbitrum did a retrospective airdrop to past users of the protocol through a point system that rewarded positive behaviors (e.g., bridging, trading over multiple months), and penalized negative behaviors (e.g., behaviors that look like Sybils, such as all address transactions occurring in under 48 hours).

Other protocols have also conducted retrospective airdrops with similar design principles. For example, Optimism rewarded users who previously interacted with the protocol by airdropping them OP tokens.

ARB has done 1 airdrop to users compared to Optimism which has done 3 continuous airdrops . Both Arbitrum and Optimism focused on rewarding loyal users and tried to limit exploitation by airdrop farmers through their eligibility criteria. However, completely preventing farming remains challenging.

Celestia Airdrop Approach

Celestia builds a consensus layer for modular blockchain projects. By separating the data availability and consensus layer from the execution layer, Celestia provides a scalable and secure solution for developers to create their own blockchains without compromising on security or decentralization.

In terms of airdropping tokens, Celestia's approach is inclusive, targeting a wide range of developers and on-chain users. This is done by distributing tokens through various Ethereum wallets that have interacted on rollups. They also airdrops to developers, researchers and Cosmos Stakers and Osmosis LP’s.

In general, Celestia airdrop of including both Ethereum and Cosmos community while also adding developer mindshare via Github airdrop is an interesting and inclusive approach to create a more equitable and engaging airdrop ecosystem.

Although the challenges are the airdrops are fairly passive in nature, meaning users do not need anything on Celestia network before claiming. In a way, airdrop farmers or sybil accounts who qualified for previous L2 airdrops like ARB and OP could claim their share of Celestia.  Although one thing interesting aspect of Celestia airdrop is they distribute to builders via github

Quoted from the paper written by Lane, Berg and Allen on “why airdrop cryptocurrency token”

Rewarding previous users of a protocol provides no additional incentive for new

users who are critical to business growth. Retrospective airdrops do not

meaningfully help resolve the cold start problem.

Which begs the question, how to design a successful airdrop campaign?

Innovative Solutions: Redefining Airdrops

To address the challenges posed by airdrops and steer them toward a more equitable and engaging future, innovative approaches have emerged. These approaches offer fresh perspectives on how airdrops can be conducted, fostering inclusivity and redefining their role in the crypto ecosystem.

Currently there are 2 frameworks to evaluate an airdrop

The first frameworks introduced in the paper of Crypto Airdrops: An Evolutionary Approach by Darcy W. E. Allen. Essentially for an airdrop to succeed in the current environment we need:

(1) a wider scope of on-chain metrics;

(2) retrospective and behaviour-shifting elements;

(3) more specific anti-mercenary behaviour in their design and execution.

Another framework by Javier Ang, they identified essentially 3 points to a successful airdrop program

source : Javier Ang tweet

Based on these 2 frameworks, let’s do an analysis for potential projects that will do an airdrop:

Friendtech Airdrop Approach

FriendTech is web3 social apps where users can buy or sell shares(keys) of their friends. Backed by Paradigm which gives them the edge of experimenting within crypto realms.

Friendtech is at the forefront of pioneering a novel approach to airdrops. Instead of the traditional method of passive token distribution, Friendtech's airdrop approach centers on web3 social gameplay. Users actively participate and engage in interactive experiences to earn points, blurring the lines between airdrops and engaging online activities.

Every week different points are airdropped to FT users. As a result of a wider scope of on-chain metrics that is evaluated every week, it not only makes airdrops more dynamic and engaging but also mitigates the issues associated with airdrop farmers. By encouraging active participation, Friendtech aims to create a more inclusive airdrop ecosystem where rewards are earned through meaningful interactions.

The current iteration of FT satisfies the 2 frameworks we established before:

According to Darcy’s airdrop framework:

(1) a wider scope of on-chain metrics - referral points and bridging tx

(2) retrospective and behaviour-shifting elements - weekly airdrop points

(3) more specific anti-mercenary behaviour in their design and execution - buying and selling keys, randomly allocated points airdropped every week.

Along with Javier’s airdrop Framework:

• Point based model

• Clear timelines - 6 months

• Gamification with healthy levels of challenge - referral and interacting with keys

• Consistent feedback through micro rewards - weekly airdrop points

• Suggest substantial profitability - participants can estimates the value of airdrop with points received

• Micro airdrops - points are convertible into token or multiple rounds airdrop will occur in the future

FriendTech is an example of upcoming airdrops that continuously refined their approach. Although it would be interesting to see the impact of the airdrop for the protocol seeing that they are a web3 social platform which are totally different from other protocols we analyzed before.

The Future of Airdrops: Enduring Value and Continued Innovation

Despite the challenges and complexities, airdrops remain a valuable tool in the crypto ecosystem, and there are compelling reasons to believe that they will persist and evolve in the years to come.

Sticky Customers and User Loyalty

One of the enduring strengths of airdrops is their ability to create "sticky" customers. Airdrops serve as a powerful tool for attracting and retaining users within crypto communities. By distributing tokens to early adopters and loyal supporters, protocols can foster a sense of belonging and commitment among users.

This loyalty is a valuable asset for crypto projects, as it contributes to the longevity and stability of their communities. Airdrops, when strategically executed, can serve as a catalyst for building and maintaining a dedicated user base.

It remains an open question whether airdrop created a sticky customer, but if we balance with the frameworks above it is clear that keeping the game running is a method to create sticky customer and loyalty in our industry.

Efficiency and Token Distribution

Airdrops, when compared to other incentivization methods, can be highly efficient. They allow protocols to achieve their objectives with relatively fewer tokens. This efficiency is particularly valuable in situations where token resources are limited, and projects need to make the most of their token allocations.

We agree it needs more refinement to strike the balance between users and protocols in terms of fair distribution. More importantly, allocating incentives for future users is a more targeted way that can lead to more meaningful engagement and participation rather than retrospective airdrops that focus on past activities.

The Role of Continued Innovation

As long as crypto protocols continue to recognize the value of airdrops in building communities and incentivizing user participation, they are likely to persist in the crypto space. However, their evolution will be driven by ongoing innovation.

Protocols will need to adapt to the changing dynamics of the crypto landscape and explore new approaches to airdrop design. The initiatives of protocols like Friendtech and Celestia underscores the importance of creativity and user-centric thinking in redefining the airdrop experience.

Protocols can observe and learn from airdrops in other ecosystems and examine which criteria effectively targeted genuine users, incentivized recipients to hold the airdropped tokens, or identified Sybil attack or other mercenary patterns.

They can also learn directly from their own communities by observing on-chain activities and following strategically releasing information. Recipients of airdrops also learn and adapt over time by observing the airdrop criteria of other airdrops and how those criteria have evolved over time.

Concluding Thoughts

In this comprehensive exploration of airdrops, we have uncovered the challenges they face and the innovative solutions that are reshaping their landscape. Airdrops are not static; they are a dynamic force that continues to evolve to meet the demands of an ever-changing crypto world.

The future of airdrops lies in our collective imagination and determination to adapt, innovate, and embrace these changes. In this dynamic space, airdrops are not just tokens dropped from the sky; they are the seeds of growth for crypto ecosystems. As we continue to explore these transformative approaches, we are poised to unlock the true potential of airdrops in the crypto world, ensuring that they remain a valuable tool for projects and participants alike.

With the challenges addressed, innovative solutions embraced, and a commitment to fairness and inclusivity, airdrops are set to play a pivotal role in the crypto ecosystem's ongoing evolution. As the crypto community navigates this dynamic landscape, one thing is clear: airdrops are here to stay, and their potential is limitless.