Why do so many airdrops end up an absolute dumpster fire?

Much of the discourse now seems to be that there is no way to win with an airdrop and you may be better off not doing one.  I think airdrops can be great and should continue, but they need an overhaul in approach. Some terminology……

• Product - Stand in for any crypto project - app, protocol, etc.

• Entity - Any one actor, could be an individual or group

• Airdrop Campaign - any implicit (assumed) or explicit (points system) reward for pre-token activity

Projects should be considering the goals they want to achieve and how any incentive program helps move them towards those goals. What should be the goals of an airdrop campaign?

1. Product testing - Get feedback, see how the product responds to real usage

2. Community Building - More entities paying attention to your project is always good.  Seeding potential power users, governance participants, etc.

3. Data - See how users use the product, get users and assets in the door

The most controversial here is #3.  People dont want to use a product no one else is using so you need initial users.  Ideally incentives give the product a chance, then entities stick around to use the product post-token because of its merits as a product.  As a rule - dont present and flex usage data as organic until it actually is.

So what is the essence of what any project designing an airdrop be attempting to solve for?

The most amount of well capitalized, engaged entities sticking around.  Entities that will be there using the product, adding deposits, and participating in the community and governance.

The great thing about crypto is that everything is onchain, so airdrops should be easy! So, what are the problems?

1. Sybil - Its negligible for one entity to create thousands of onchain identities to interact with a protocol

2. Whales - 1% of entities have 99% of the assets.

These two facts drive most of the problems with airdrops

• If you attempt to incentive purely based on individual entities, then you will be sybilled to oblivion.

• If you incentivize purely on deposits, a few entities soak up all of the rewards.

This is where it feels like the effort has stopped, you either piss off individual entities (ending up with few sticking around) or whales (leading to capital flight). 

The goal of any defi system should be to make users begrudgingly engaged, and this is most effectively done through competition. Farming shouldn’t be easy! Just like weight classes in boxing, systems shouldn’t be built with fundamentally different entities competing against one another.  Whales should compete with whales, shrimp should compete with shrimp.

So how to do this in the context of an airdrop? - Consolidation and Compartmentalization

Without resorting to KYC (yet) how do you attempt to validate 1 user = 1 entity?  Incentives!

• Add a power to calculating deposits for the purposes of the airdrop ($1 deposit = 1^1.02 for airdrop calculations)

• The larger your deposit the more tokens earned per $ deposit

This incentivizes all entities to consolidate their deposits into one account

Add fixed rewards based on deposit rank.

• Example - 100 tokens for each of the top depositors.

• There can be multiple tiers (50 tokens for 100-500 by rank, etc.)

The entity at the bottom of any tier will always receive the highest token per $ of that group.  Those near the top are incentivized to add more to move into the next range.

With these components in place, its possible to run a transparent airdrop campaign where “gaming” it has positive effects - more distinct entities and more deposits.

Obviously context needs to be taken into account but these concepts can be generally applied in different ways given the specifics of a project and its goals.

Transactional protocols - A bridge for example doesnt always have deposits and may care more about transaction flow which sybillors can exploit by using the same funds for many transactions.  Projects in this category should look to filter based on funds that were “Sticky”, making it to a destination and staying there.  More difficult to track but very doable.

Geoblocking - There are numerous solutions to allow for US residents to KYC/AML/Accreditation check.  If there is concern about distributing to US persons, allow them to register their address if they want to claim.

I have worked with, participated in, and watched innumerable token drops. I always say once a token is out its alive, you cant kill it, so you need to be careful about how youre releasing it into the world. The token is never the product, it should serve and enhance the core offering. This is a common opinion but the response is often to put less effort into the initial token distribution than putting more effort in. Im hoping we can see more attention and advancement in airdrop strategies instead of them falling out of favor. If i missed any angles let me know!

Why do so many airdrops end up an absolute dumpster fire?

Much of the discourse now seems to be that there is no way to win with an airdrop and you may be better off not doing one.  I think airdrops can be great and should continue, but they need an overhaul in approach. Some terminology……

• Product - Stand in for any crypto project - app, protocol, etc.

• Entity - Any one actor, could be an individual or group

• Airdrop Campaign - any implicit (assumed) or explicit (points system) reward for pre-token activity

Projects should be considering the goals they want to achieve and how any incentive program helps move them towards those goals. What should be the goals of an airdrop campaign?

1. Product testing - Get feedback, see how the product responds to real usage

2. Community Building - More entities paying attention to your project is always good.  Seeding potential power users, governance participants, etc.

3. Data - See how users use the product, get users and assets in the door

The most controversial here is #3.  People dont want to use a product no one else is using so you need initial users.  Ideally incentives give the product a chance, then entities stick around to use the product post-token because of its merits as a product.  As a rule - dont present and flex usage data as organic until it actually is.

So what is the essence of what any project designing an airdrop be attempting to solve for?

The most amount of well capitalized, engaged entities sticking around.  Entities that will be there using the product, adding deposits, and participating in the community and governance.

The great thing about crypto is that everything is onchain, so airdrops should be easy! So, what are the problems?

1. Sybil - Its negligible for one entity to create thousands of onchain identities to interact with a protocol

2. Whales - 1% of entities have 99% of the assets.

These two facts drive most of the problems with airdrops

• If you attempt to incentive purely based on individual entities, then you will be sybilled to oblivion.

• If you incentivize purely on deposits, a few entities soak up all of the rewards.

This is where it feels like the effort has stopped, you either piss off individual entities (ending up with few sticking around) or whales (leading to capital flight). 

The goal of any defi system should be to make users begrudgingly engaged, and this is most effectively done through competition. Farming shouldn’t be easy! Just like weight classes in boxing, systems shouldn’t be built with fundamentally different entities competing against one another.  Whales should compete with whales, shrimp should compete with shrimp.

So how to do this in the context of an airdrop? - Consolidation and Compartmentalization

Without resorting to KYC (yet) how do you attempt to validate 1 user = 1 entity?  Incentives!

• Add a power to calculating deposits for the purposes of the airdrop ($1 deposit = 1^1.02 for airdrop calculations)

• The larger your deposit the more tokens earned per $ deposit

This incentivizes all entities to consolidate their deposits into one account

Add fixed rewards based on deposit rank.

• Example - 100 tokens for each of the top depositors.

• There can be multiple tiers (50 tokens for 100-500 by rank, etc.)

The entity at the bottom of any tier will always receive the highest token per $ of that group.  Those near the top are incentivized to add more to move into the next range.

With these components in place, its possible to run a transparent airdrop campaign where “gaming” it has positive effects - more distinct entities and more deposits.

Obviously context needs to be taken into account but these concepts can be generally applied in different ways given the specifics of a project and its goals.

Transactional protocols - A bridge for example doesnt always have deposits and may care more about transaction flow which sybillors can exploit by using the same funds for many transactions.  Projects in this category should look to filter based on funds that were “Sticky”, making it to a destination and staying there.  More difficult to track but very doable.

Geoblocking - There are numerous solutions to allow for US residents to KYC/AML/Accreditation check.  If there is concern about distributing to US persons, allow them to register their address if they want to claim.

I have worked with, participated in, and watched innumerable token drops. I always say once a token is out its alive, you cant kill it, so you need to be careful about how youre releasing it into the world. The token is never the product, it should serve and enhance the core offering. This is a common opinion but the response is often to put less effort into the initial token distribution than putting more effort in. Im hoping we can see more attention and advancement in airdrop strategies instead of them falling out of favor. If i missed any angles let me know!