Crypto projects often use airdrops to distribute free tokens to community members, but how effective are they?
Airdrops help spread a project’s token supply to the public and may be part of a broader marketing plan to increase awareness of its core or new products.
Users can acquire these tokens without spending money; and typically receive them near the launch of the protocol, or retroactively after using the protocol, subject to certain eligibility criteria.
But how much do these airdrops affect the project’s native token?
The study looks at the price performance of 31 different token airdrops over 1.5 years from Uniswap ($UNI) in September 2020 to Evmos ($EVMOS) in April 2022.
This is not an exhaustive list of all airdrops in the time frame, but an attempt to encapsulate as many airdrops as possible that meet these parameters:
- The token will be launched at the same time as the Genesis airdrop (that is, the airdrop will not be carried out after TGE)
- The project has some form of roadmap based on Gitbook/Public Docs
- The project stated its intention to reward existing users / further market its product / decentralize token supply ownership through airdrops
- Tokens have been around long enough to provide meaningful data points
First, let’s look at the distribution of the percentage of token supply that each project has allocated to the airdrop:
On average, projects allocate 7.5% of their token supply to airdrops – using median calculations to avoid unusual skewing.
Most projects allocated less than 10% of their token supply for airdrops, followed by 26% in the 10-20% range and 23% in the >20% range.
In contrast, projects tend to allocate around 10% to investors and around 15% to team members (data adapted from here), so setting aside 7.5% of the token supply for projects that decide to airdrop a large proportion.
So why allocate such a large percentage to the airdrop?
Token airdrops have multiple benefits for projects:
- If the product is about to go live, the founder may want to expand marketing and visibility. A successful airdrop would be an effective way to gain more attention in a short period of time, while giving users time to research the legitimacy of the project. (eg APE, EVMOS, LOOKS)
- If a project has been running for a while, airdrops are a great way to reward early adopters and dedicated community members, while incorporating token mechanics into day-to-day protocol operations. (eg COW, DYDX, ORCA)
Price performance after airdrop (100 days)
While airdrop strategies may achieve the above intents in the short term (e.g. increased DAU, increased TVL, new wallet interactions), the long-term incentives for native tokens may not always be consistent.
Let’s take a look at the price performance of each token after the genesis airdrop:
At first glance, this looks like a crowded chart.
The prices above have been normalized to 1.0 (y-axis) and scaled to the number of days since their respective genesis airdrops (x-axis).
If an item’s price on day 1 is 1.0, we want to know how it compares on day 100. The graph shows that after 100 days, a whopping 74% of projects have their native tokens trading below their day 1 prices.
Only 7 projects are trading above their launch price, notably $ORCA (DEX on Solana) at 4.8x launch price and $RAIDER (a utility-based NFT RPG game) at 2.4x launch price outstanding.
Other projects — $GTC, $1 INCH, $JUNO, $OSMO, and $UNI — are trading below 2x their issue price.
The chart below goes on to detail over time: (i) average price performance deteriorated, and (ii) an increasing number of items in the sample traded below their first-day price.
- On day 5, the average price of the airdrop was 0.99 (-1% deviation from day 1), and 55% of the transactions were already below the posted price
- On day 50, the average price of airdrops was 0.87 (-13% difference from day 1), and 70% of the transactions were below the launch price
- By 100 days, the average price of airdrops was 0.64 (-36% depreciation from day 1), and 74% of transactions were below the launch price
Price performance after airdrop (200 days)
When these numbers were extrapolated over a longer time frame (200 days after the airdrop), the results were no different.
The chart below shows a downward trend in price performance over a longer period, with the median airdrop price dropping from 0.99 on day 5 to 0.44 on day 200.
The majority of projects (72%) continued to trade below their launch price, although a few notable projects performed well for token holders.
Launched in September 2020 and by Q2 2021 (day 200), $UNI has become the most dominant DEX across all chains by daily trading volume.
- Token holders can participate in governance proposals, and macro conditions are favorable catalysts for price performance after airdrops
- While not shown on the chart, $UNI continues to hold above its airdrop price today (nearly 2 years since launch), trading at just over 1.5x its original airdrop price
$RAIDER took an unconventional approach to release in August 2021 – the team started its own path with a successful NFT sale and released the original P2 E RPG game on Polygon a few weeks later.
- By Q1 2022 (Day 200), they had built a strong community and a broad base of active participants, which helped secure a $6M funding round co-led by Delphi, DeFiance, 3 AC, and Polygon
- This explains the strong price performance of over 6.5x after the airdrop
- However, unfriendly macro conditions have hit the crypto gaming industry the hardest, resulting in declining user metrics and underperforming coin prices to date – 0.44x its original airdrop price
While $UNI and $RAIDER suggest that airdrop tokens have the potential to perform well over longer time horizons, the overall sample suggests that airdrops generally do not have the best impact on your long-term price action.
As a founder, you want your token to fall into the hands of community members who support your project, participate in governance, staking, or use it.
Airdrops based on initial parameters or based on user metrics can spread the possibility of this happening, especially if there are rumors of an imminent airdrop, as this would attract non-loyal witch hunters (eg Paraswap, Hop Protocol, Optimism).
The chart below shows the combined median of each token’s normalized price over 200 days.
According to the historical median data, in the 200-day time frame, only two days of the median airdrop outperformed the launch price — day 4 (+1%) and day 18 (+4%).
This suggests that the best time for users to sell airdrops will be as early as possible, ideally between day 1 and day 5 (red shaded area), as there is little price volatility during this period.
Monetizing airdrops as soon as possible appears to be self-optimizing if users don’t want to participate in the project themselves or don’t like the token economics of the protocol.
However, in some cases, teams airdropped tokens before they gained enough traction. Then it could be that a user decides to sell on the day of the airdrop, but later realizes that they want to participate in the project and have a stake as a token holder.
The best time to do this is 5 to 6 months (shaded green area) with a minimum median airdrop price of 0.33x (-67% from launch day price).
E.g. If you buy $UNI and $OSMO on day 150 after the airdrop and sell on day 200, you will get +42% and +59% net gain respectively.
This strategy may apply to projects proving themselves months after the initial airdrop, metrics include how active they are in participating in the community, communicating with ecosystem foundations (e.g. Ethereum, Cosmos), and their commitment to delivering and meeting product roadmaps speed milestone.
If you are a developer/project founder: Consider decentralizing token supply or increasing product visibility in a way other than airdrops.
Historically, airdrops have been detrimental to your token’s long-term price action. This research does not explore the effectiveness of airdrops on other project parameters, such as increased user metrics, new wallet interactions, increased TVL, etc. – but even if airdrops are effective in these areas, would you be willing to pay the price of a majority of retail holders? Doing this at the expense of early smashing?
Alternative execution method:
Airdrops are awarded based on time (applicable weekly within 3 months)
Airdrops are honored based on milestones (can be claimed after completing certain operations)
Airdrops are awarded based on a combination of time and milestones (can be redeemed for a specific period based on the user’s participation in the protocol receive)
If you are a retail holder who received an airdrop, your decision tree should look like this:
- Do I need tokens to interact with this protocol? If yes, HODL.
- Will monetizing it now make a big difference for me? If not, HODL.
If you can continue to use the protocol without a token (e.g. Paraswap DEX aggregator) and have significant value when monetizing (e.g. dYdX airdrop), you may want to sell the airdrop as soon as you add liquidity!
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/what-is-the-effect-of-the-token-airdrop-we-should-rethink-our-airdrop-strategy-for-the-next-cycle/
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