Airdrops are a beautifully unique part of crypto. Teams are eager to pay YOU just for interacting with their products. Often this payout can be in the range of 5+ figures. Free money falling from the sky is fun for those who receive it, but often stirs rage in those who are excluded. Furthermore, many complain that current airdrop strategies are ineffective at retaining “real” users and cater mostly to bot farms and sybil attackers. As a result in many cases token price and daily use metrics suffer in the weeks and months following large airdrops. Airdrops aren’t going to disappear anytime soon, but certainly could be improved and/or further gamified to increase user engagement and decrease negative sentiment. Here I’ll propose airdrop strategies that could serve this end.

The simplest way of distributing tokens to users is to just send them out to as many wallets as possible. The highest profile of these occurred in 2020, when the very concept of a “valueless governance token” was still somewhat new. In those days the period of time between the public finding out about an upcoming token and its release was extremely short compared to today; for example, the Sushiswap vampire attack / Uniswap airdrop response all occurred over a few weeks between late August and early September 2020. This way of doing things is somewhat played out now because tokens are seen as an inevitability by users unless explicitly told otherwise.

Today tokens just don’t fall on people’s heads randomly. The period of time between protocol launch has increased significantly, from a few weeks to multiple years as in the case of ZKsync. The list of things users need to do on a particular platform has also gone up. For Arbitrum’s 2023 airdrop, a total of 18 separate criteria determined a user’s allocation.

The rise of NFTs brought an easy way to build a list of potential airdrop recipients. Since most collections have <10,000 items, the ability of a bot farm to exploit a distribution is diminished to an extent. Additionally, NFT collections can be used to target particular subcultures within the space easily. These have been done internally, as with Apecoin and Bored Ape holders, and externally. External drops are instances when an unrelated third party rewards the owners of a particular collection. Milady, for example, has been allocated airdrops from ZKsync, Ethena, Omni and several others. This approach is limited in scale and not necessarily optimal.

Points-based airdrops are the latest trend. Under this system, users accrue non-monetary points as they interact with a protocol, which at some point in the future are converted to tokens. Users typically do not know the specific ratio of points:tokens at TGE in advance but given that the opening market cap of the token is usually also ambiguous, this isn’t of particular concern. What does matter, however, is that the additional transparency allows users to see how much they will be rewarded relative to others, which is a significant benefit over other strategies.

Tapioca had an interesting and novel approach to distributing tokens. $TAP was initially distributed via a Balancer LBP held over 48 hours. A week following this, 30% of each users contribution is to be distributed as $oTAP, which are American style call options with a strike price at a 50% discount to the opening price of $TAP following the conclusion of the LBP period and one week to expiry. One major benefit here is that although most will still opt to exercise the options immediately and capture the spread, Tapioca is still able to capture additional protocol owned liquidity in the process. Users are still rewarded if they exercise the options but this is not a free lunch. Pretty neat.

Disclaimer: I own $TAP but here I am not necessarily endorsing Tapioca’s actual product, my only interest in this context is their airdrop mechanism

Thus fair airdrops have always revolved around distributing only the underlying physical tokens to users. This approach can easily spread a token very thinly across many thousands of wallets, depending on how conditions are structured and filters are applied. But optimizing for maximum distribution in this manner, in my opinion, implies that governance is the most valuable aspect of owning a token. In reality, protocol governance is not relevant to most “organic” users and thus small allocations to a large group of users doesn’t necessarily lead to long term protocol interactions.

What does matter to a protocol then? Protocols need users to trade, stake, LP, borrow and lend on their platforms. If a project can convert speculators into users, odds are they’ll be around a lot longer, which is ideal. These are my ideas on how a protocol might accomplish this.

veDrops

Some airdrops have elected to distribute tokens in a vesting schedule rather than give 100% of each user’s allocation all at once. This has the benefit of reducing short term sell pressure, but at the same time may cause user frustration or for them to forget about their airdrop altogether while waiting. For a protocol that employs ve-nomics or revenue sharing mechanisms, distributing locked tokens rather than vesting unlocked tokens brings the benefit of allowing the tokens not yet made available to the user to both accrue yield and potentially participate in the bribe system of a voting escrow. (This might have been done already, but I currently am not aware of any projects that have done so). Similar in spirit to this would be Lockdrops, where capital is committed upfront in order to receive new tokens, as was done extensively in the Polkadot ecosystem.

LiquidationDrop

Lending markets already outsource liquidating undercollateralized positions to external parties. Maintaining a network of liquidators is vital to preventing the protocol from accruing bad debt and functioning as intended. What if a protocol airdropped the right to liquidate?

Airdrop recipients could receive a combination of tokens (that perhaps they are obligated to supply in the market for some period of time, or otherwise stake/lock) and liquidation coupons. The coupons are then ‘redeemed’ and become valid for a certain length of time, during which the airdrop recipient is entitled to a % of the collateral liquidated + additional emitted governance tokens.

If only a small number of coupons could be active at the same time, a queue could form, which could serve as a way of nudging user time preferences farther outwards. Additionally, there would be the luck/skill required in timing the market such that your coupon is active when liquidations are likely to occur, creating a lottery like system with what you’ve received (see below).

In any protocol where the tokens in question are expected to capture a share of protocol revenue, or bear yield via some other mechanism, why not distribute future claims to yield rather than just the underlying principle? This at least locks in the user until the yield token’s maturity while also bootstrapping a yield market for the token early on. The protocol itself would handle the separation of the ST into PT and YT (using pendle terms here), retain the PT and use it as POL, then distribute the YT to the users.

Usually simpler is better. Simple airdrops are easier and cheaper. But they’re also easier to game, and more likely to make a large group of people mad. Of course you can’t satisfy everyone, but in my opinion simply throwing tokens at wallets that have passed a sybil filter isn’t the best way to retain users for the long term, nor is it conducive to good medium term price action. But more complicated solutions require the value being given out to be large enough to compensate for the time required. Low value airdrops that also bring additional steps or require a waiting period will just cause users to lose interest. There is definitely a happy medium somewhere, and personally I'd like to see further gamification of these systems as a way to spice things up.

And the most obvious, easiest solution will always be: GIVE YOUR TOKENS TO MILADY AND MILADY ONLY!!

Airdrops are a beautifully unique part of crypto. Teams are eager to pay YOU just for interacting with their products. Often this payout can be in the range of 5+ figures. Free money falling from the sky is fun for those who receive it, but often stirs rage in those who are excluded. Furthermore, many complain that current airdrop strategies are ineffective at retaining “real” users and cater mostly to bot farms and sybil attackers. As a result in many cases token price and daily use metrics suffer in the weeks and months following large airdrops. Airdrops aren’t going to disappear anytime soon, but certainly could be improved and/or further gamified to increase user engagement and decrease negative sentiment. Here I’ll propose airdrop strategies that could serve this end.

The simplest way of distributing tokens to users is to just send them out to as many wallets as possible. The highest profile of these occurred in 2020, when the very concept of a “valueless governance token” was still somewhat new. In those days the period of time between the public finding out about an upcoming token and its release was extremely short compared to today; for example, the Sushiswap vampire attack / Uniswap airdrop response all occurred over a few weeks between late August and early September 2020. This way of doing things is somewhat played out now because tokens are seen as an inevitability by users unless explicitly told otherwise.

Today tokens just don’t fall on people’s heads randomly. The period of time between protocol launch has increased significantly, from a few weeks to multiple years as in the case of ZKsync. The list of things users need to do on a particular platform has also gone up. For Arbitrum’s 2023 airdrop, a total of 18 separate criteria determined a user’s allocation.

The rise of NFTs brought an easy way to build a list of potential airdrop recipients. Since most collections have <10,000 items, the ability of a bot farm to exploit a distribution is diminished to an extent. Additionally, NFT collections can be used to target particular subcultures within the space easily. These have been done internally, as with Apecoin and Bored Ape holders, and externally. External drops are instances when an unrelated third party rewards the owners of a particular collection. Milady, for example, has been allocated airdrops from ZKsync, Ethena, Omni and several others. This approach is limited in scale and not necessarily optimal.

Points-based airdrops are the latest trend. Under this system, users accrue non-monetary points as they interact with a protocol, which at some point in the future are converted to tokens. Users typically do not know the specific ratio of points:tokens at TGE in advance but given that the opening market cap of the token is usually also ambiguous, this isn’t of particular concern. What does matter, however, is that the additional transparency allows users to see how much they will be rewarded relative to others, which is a significant benefit over other strategies.

Tapioca had an interesting and novel approach to distributing tokens. $TAP was initially distributed via a Balancer LBP held over 48 hours. A week following this, 30% of each users contribution is to be distributed as $oTAP, which are American style call options with a strike price at a 50% discount to the opening price of $TAP following the conclusion of the LBP period and one week to expiry. One major benefit here is that although most will still opt to exercise the options immediately and capture the spread, Tapioca is still able to capture additional protocol owned liquidity in the process. Users are still rewarded if they exercise the options but this is not a free lunch. Pretty neat.

Disclaimer: I own $TAP but here I am not necessarily endorsing Tapioca’s actual product, my only interest in this context is their airdrop mechanism

Thus fair airdrops have always revolved around distributing only the underlying physical tokens to users. This approach can easily spread a token very thinly across many thousands of wallets, depending on how conditions are structured and filters are applied. But optimizing for maximum distribution in this manner, in my opinion, implies that governance is the most valuable aspect of owning a token. In reality, protocol governance is not relevant to most “organic” users and thus small allocations to a large group of users doesn’t necessarily lead to long term protocol interactions.

What does matter to a protocol then? Protocols need users to trade, stake, LP, borrow and lend on their platforms. If a project can convert speculators into users, odds are they’ll be around a lot longer, which is ideal. These are my ideas on how a protocol might accomplish this.

veDrops

Some airdrops have elected to distribute tokens in a vesting schedule rather than give 100% of each user’s allocation all at once. This has the benefit of reducing short term sell pressure, but at the same time may cause user frustration or for them to forget about their airdrop altogether while waiting. For a protocol that employs ve-nomics or revenue sharing mechanisms, distributing locked tokens rather than vesting unlocked tokens brings the benefit of allowing the tokens not yet made available to the user to both accrue yield and potentially participate in the bribe system of a voting escrow. (This might have been done already, but I currently am not aware of any projects that have done so). Similar in spirit to this would be Lockdrops, where capital is committed upfront in order to receive new tokens, as was done extensively in the Polkadot ecosystem.

LiquidationDrop

Lending markets already outsource liquidating undercollateralized positions to external parties. Maintaining a network of liquidators is vital to preventing the protocol from accruing bad debt and functioning as intended. What if a protocol airdropped the right to liquidate?

Airdrop recipients could receive a combination of tokens (that perhaps they are obligated to supply in the market for some period of time, or otherwise stake/lock) and liquidation coupons. The coupons are then ‘redeemed’ and become valid for a certain length of time, during which the airdrop recipient is entitled to a % of the collateral liquidated + additional emitted governance tokens.

If only a small number of coupons could be active at the same time, a queue could form, which could serve as a way of nudging user time preferences farther outwards. Additionally, there would be the luck/skill required in timing the market such that your coupon is active when liquidations are likely to occur, creating a lottery like system with what you’ve received (see below).

In any protocol where the tokens in question are expected to capture a share of protocol revenue, or bear yield via some other mechanism, why not distribute future claims to yield rather than just the underlying principle? This at least locks in the user until the yield token’s maturity while also bootstrapping a yield market for the token early on. The protocol itself would handle the separation of the ST into PT and YT (using pendle terms here), retain the PT and use it as POL, then distribute the YT to the users.

Usually simpler is better. Simple airdrops are easier and cheaper. But they’re also easier to game, and more likely to make a large group of people mad. Of course you can’t satisfy everyone, but in my opinion simply throwing tokens at wallets that have passed a sybil filter isn’t the best way to retain users for the long term, nor is it conducive to good medium term price action. But more complicated solutions require the value being given out to be large enough to compensate for the time required. Low value airdrops that also bring additional steps or require a waiting period will just cause users to lose interest. There is definitely a happy medium somewhere, and personally I'd like to see further gamification of these systems as a way to spice things up.

And the most obvious, easiest solution will always be: GIVE YOUR TOKENS TO MILADY AND MILADY ONLY!!