[ The Chinese version of this article was published on May 24, 2024. For more details, see here or here.]

From paid services to free, and now to token distribution.

Traditional business models can be broadly divided into two categories: paid and free.

The paid model is the classic approach where companies make money by selling products or services. For example, when you buy a movie ticket, the cinema earns money. This model relies on direct transactions, which are straightforward but have limited scalability, especially in new markets with high entry barriers.

The free model, however, emerged during the internet age, particularly in the Web 2.0 era.

Web 2.0 was characterized by user-generated content, the rise of social networks, and centralized platforms. Many companies in this era monetized through advertising and data, often at the expense of user privacy and data ownership.

Platforms like TikTok attract users by offering free services, but they make money by selling user attention and data to advertisers.

So, in a way, the free model profits from "selling users."

The Web 3.0 era, however, is the age of blockchain, bringing a more decentralized and user-centric internet.

The main issue Web 3.0 addresses is the selling of users. The solution is simple: return data control to users and protect their privacy, which can all be achieved with blockchain technology.

Example: The Brave Browser and the BAT Ecosystem

Brave, a browser, has built an ecosystem around the Basic Attention Token (BAT). Users can earn BAT cryptocurrency by watching selected ads, controlling their ad experience and data privacy.

In short, using this browser allows you to earn money by watching ads you choose.

It's free to use, but unlike other browsers, you share in the ad revenue while protecting your privacy. This is only possible in the Web 3.0 era with blockchain, cryptocurrency, and smart contracts.

In Brave's case, blockchain acts as a global ledger, recording ownership of BAT; BAT, the cryptocurrency, serves as a trust vehicle for value transfer; and smart contracts automate processes, ensuring every tiny BAT transaction is executed.

The BAT you earn can be traded at any time, essentially turning it into money. Compared to Web 2.0 browsers like Chrome, Brave offers an "airdrop" experience.

While these small airdrops might not grab your attention, they remind us that airdrops can be a lifetime part of a project, not just a one-time event during a Token Generation Event (TGE).

"Airdrop" is a term bursting with imagination and expressiveness. But only by giving "airdrop" a clear definition can we delve deeper into the discussion. Can airdrops truly be a disruptive innovation in business models, following "free" services?

I believe the answer is yes. Airdrops are the second wave of business model innovation.

1. What Is an Airdrop?

Today, "airdrop" is a broad term that encompasses many things. However, two points are clear about what airdrops are not:

1.1 Airdrops Are Not Giveaways:

Airdrops are not about aimlessly distributing money. The transparency of blockchain allows every user's contribution to be recorded, enabling targeted airdrops.

For example, LayerZero's anti-Sybil attack strategy uses complex algorithms and data analysis to identify and filter out users trying to exploit multiple accounts, ensuring fair and effective airdrops. This not only increases the cost-effectiveness of user acquisition but also maintains a healthy community.

1.2 Airdrops Are Not Marketing Points:

Although many projects use points systems in their airdrops, airdrops are not just simple marketing points.

Marketing points are typically designed for short-term promotions, where users earn points by purchasing goods or services, which can then be exchanged for discounts or gifts. However, the value of points is usually fixed and limited, with little liquidity in the broader market.

In contrast, airdrops distribute tokens, which represent a share of the project and can be freely traded across blockchain platforms. The value of these tokens is determined by market supply and demand, offering greater flexibility and potential for appreciation.

While there's still considerable debate in the blockchain community about what constitutes a "true" airdrop, the core principle remains the same: the project distributes tokens to users without charging them. Anything else is not a true airdrop.

Remember, users not paying is a precondition, but this doesn't mean the project team is being charitable—it's a rule they must follow.

Initially, airdrops were a necessity, but eventually, they evolved into a new business model because of the value they created.

2. How Airdrops Evolved into a Business Model

As mentioned earlier, airdrops didn't start as a business model but as a necessity.

In fact, airdrops were often a fallback option, as other funding methods like IDO (Initial DEX Offering), ICO (Initial Coin Offering), and IEO (Initial Exchange Offering) might be considered securities offerings subject to stringent regulations. Therefore, project teams opted for airdrops to sidestep regulatory scrutiny.

Remember how I mentioned earlier that not paying is a rule in airdrop activities? This rule is based on the securities laws of various countries. However, the U.S. SEC is working to classify airdrops as securities, arguing that the consideration users pay is not just money but something else. This topic is complex and will be covered another time. At least in other countries, airdrops are not yet viewed as securities.

Blur, for example, used powerful airdrops to dethrone Opensea as the top NFT marketplace. Now, their team is working on the Blast airdrop, aiming to dominate the Ethereum Layer 2 space.

Airdrops have been widely adopted because they provide a way for users and projects to grow together. The benefits include regulatory avoidance, lower user acquisition costs, stronger community engagement, and better brand promotion.

2.1 Low User Acquisition Costs:

Traditional marketing methods can be expensive, but airdrops reduce these costs by distributing tokens directly, quickly attracting many users. Projects can use social media and community events to promote airdrop activities, achieving significant results with minimal effort.

In September 2020, Uniswap conducted a large-scale airdrop, distributing 400 UNI tokens to every user who had ever traded on the platform. This airdrop attracted many users, significantly boosting Uniswap's user base and visibility. Despite some issues, like Sybil attacks where users exploited multiple wallets to claim more airdrops, this move greatly increased user loyalty and solidified Uniswap's position as a leading decentralized exchange.

Today, Uniswap is one of the world's largest decentralized exchanges, with daily trading volumes reaching billions of dollars, consistently attracting liquidity providers and traders. The UNI token is listed on major exchanges and has become a significant asset in the DeFi space, demonstrating the efficiency and sustainability of airdrops as a user acquisition tool, though they require careful design to avoid abuse.

2.2 Community Building and User Engagement:

Airdrops can motivate users to actively participate in community-building efforts. Once users hold tokens, they become more invested in the project's development and may even actively promote and maintain it. This community-driven model enhances user loyalty and engagement.

JUP's Active Staking Rewards (ASR) linked community activities with future airdrops, attracting over 460,000 participants and locking up over 28 million JUP tokens. This not only stabilized JUP's price but also benefited the project's long-term growth.

According to the ASR rules, users who participate in voting will share in the subsequent airdrop of 50 million JUP and 75% of new coin listing revenue in July 2024, regardless of the voting outcome.

3. Market Promotion and Brand Exposure:

Airdrops enable projects to quickly increase their visibility and brand exposure. The massive participation and discussion around airdrops bring significant attention to the project, enhancing its market influence.

ENS, a relatively niche project, conducted an airdrop in November 2021, distributing ENS tokens to all users who had registered .eth domain names.

Each user received a varying number of ENS tokens based on the number of domains they held and the duration of registration. This airdrop not only rewarded early supporters but also drew more attention to the ENS project. Today, you'll often see Twitter accounts with .eth in their usernames.

These examples show that airdrops are not just a means to avoid regulation but a proactive market promotion and user acquisition strategy. By directly distributing tokens, projects build a strong community ecosystem, driving sustainable development.

Airdrops, the "new wave," are sweeping away the "free" services of the past.

3. What Have Airdrops Disrupted?

In short, airdrops have changed the flow of benefits and the logic of business.

In traditional business models, companies make money by selling products or services and then distribute a portion of the profits to shareholders or investors. Airdrop models, however, link the project's growth directly to user participation by distributing tokens. Project teams no longer rely on making money first and then sharing profits; instead, they distribute tokens to make users part of the project, driving its development.

Airdrops are essentially similar to currency issuance.

Project teams issue tokens, essentially printing money.

These tokens are part of the project and have inherent value. Through airdrops, project teams distribute tokens to users, akin to distributing future project earnings to them, greatly motivating users.

At its core, currency is just a symbol, fundamentally a consensus.

Whether traditional fiat currency or blockchain tokens, their value depends on trust and recognition. Airdrop models establish initial user trust and consensus through token distribution, driving project development.

Since the birth of Bitcoin, the era of capital dominance is gradually fading.

If we consider early Bitcoin mining as a form of airdrop open to everyone, then Bitcoin's rise from pennies to tens of thousands of yuan has primarily benefited not traditional capitalists but those who believed in and participated in the Bitcoin project from the start. They are innovators, practitioners, and holders and users of Bitcoin.

Airdrop models disrupt the absolute authority of capital in traditional business models. In traditional models, investors (shareholders) are the project's primary drivers, determining its direction. In airdrop models, users participate in project governance and development by holding tokens, achieving true ownership, sharing, and co-governance.

This approach blurs the lines between users, shareholders, producers, and consumers, making every participant part of the project. It also maximizes user engagement, further reducing the project's reliance on capital.

Conclusion

The secret of airdrops lies in trading time for space.

Airdrops use tokens to focus more attention on the future, while also monetizing future value in the present. This principle is no different from a stock listing. For this reason, countries strictly regulate token sales, leading to the emergence of airdrops as a model.

Of course, for projects that only airdrop a small portion to the community while hoarding most tokens, be cautious—they're using airdrops to skirt regulations and issue stock. Don't participate in those.

Going further, airdrops not only change the logic of business but also the way wealth is owned. The improvement of decentralized governance will lead to a new ownership model:

a form of shared ownership, sharing, and co-governance.

Isn't this a new form of communism?

Today, we've discussed many concepts; let's finish with some practical advice. Here are three AI + Web3 projects for you to share in the benefits of the times. Two are zero-cost: Grass, which you can join with a computer, and upRock, which requires just a phone. The third is Morpheus, a project I wish I had discovered sooner, though it requires staking stETH to participate.

[For more content, visit Airdrop Project Base]