sixdegreelab.eth https://paragraph.com/@sixdegreelab-3 undefined Tue, 04 Aug 2026 03:06:16 GMT https://validator.w3.org/feed/docs/rss2.html https://github.com/jpmonette/feed en All rights reserved <![CDATA[Chapter 3: Liquidity mining - A review by SixDegree ]]> https://paragraph.com/@sixdegreelab-3/chapter-3-liquidity-mining-a-review-by-sixdegree lVsPwpOw85wPtCLvPzXt Thu, 05 Oct 2023 08:16:52 GMT Summary

  • Liquidity Mining (LM) program is still seen as the best way to bootstrap new ecosystem and new applications. However, very few people have used empirical studied / data-driven research to assess the true impact of LM.

  • We studied the Uniswap 2020 LM program and found that the LM program did not improve significantly the liquidity nor the trading volume of major AMM pools including USDT-WETH, USDC-WETH, DAI-WETH and WBTC-WETH

  • The LM program had a similar retention rate than airdrop with a 82% of LP churn after the end of the LM program.

  • Our research is consistent with previous research including OP Uniswap such as analysis provided by SpringZhang (Sixdegree), 1choiku and Zelos.

  • We use a diff-in-diff model to assess liquidity mining impact on Uniswap pools and found that liquidity does improve after the LM strategy, but the trading volume did not increase and even decrease slightly.

  • This suggests that increased liquidity does not necessarily promote a rise in volume.

  • If we consider LM as a form of customer acquisition for AMM, we found that the CAC of Uniswap was a staggering $7k+ per LP.

  • This is one of the first time we believe one research the retention and impact of LM including CAC calculation.

  • A subsequent article will delve into a more detailed analysis from the LTV perspective, such as how much liquidity is contributed by the 17% of retained users.

  • We recommend protocols not do to one major airdrop and instead to have many microairdrops using data-driven strategy to build a strong holder base

  • Sixdegree can help you build such strategy with Rabbithole infrastructure. Read about our case study with ParaSwap using RabbitHole and onchain quests.

  • Contact us as contact@sixdegree.xyz and Follow us on Twitter

3.Liquidity Mining Analysis

4.1 Overview

From September 18, 2020, 12:00 am UTC until November 17, 2020, 12:00 am UTC, Uniswap initiated liquidity mining rewards in four pools. We are analyzing the amount of ETH in these four pools during and around the liquidity mining period, as well as the trading volume. By evaluating these metrics, we aim to assess the impact of the liquidity mining campaign on Uniswap.

  • USDT-WETH:0x0d4a11d5eeaac28ec3f61d100daf4d40471f1852

  • USDC-WETH:0xb4e16d0168e52d35cacd2c6185b44281ec28c9dc

  • DAI-WETH:0xa478c2975ab1ea89e8196811f51a7b7ade33eb11

  • WBTC-WETH:0xbb2b8038a1640196fbe3e38816f3e67cba72d940

Since it's challenging to identify a rigorously comparable control group, conclusions are primarily drawn by comparing data before and after the liquidity mining event. There are potential inaccuracies in this approach, mainly because the control and experiment groups exist in different time frames, introducing some additional influencing factors.

Note: in the Liquidity Mining Analysis section, we only chose Uniswap. The reason is that Uniswap is easier to analyze because they have clear start and end dates for their liquidity mining. For most other DEXs, their liquidity mining is ongoing, and we haven't found a particularly suitable protocol to analyze yet.

4.2 Liquidity Performance

During the liquidity mining period, there was a notable increase in the liquidity of the four pools. This indicates that liquidity mining has a significant positive effect on the growth of liquidity in these pools.

  • During the liquidity mining period, the liquidity (total ETH amount) of the four pools saw a significant increase, from 217,096,003 to 1,027,618,752, which is an increase of 3.7 times.

  • After the liquidity mining event ended, the liquidity (total ETH amount) in the four pools returned to pre-event levels, or even slightly increased, from 217,096,003 to 256,462,119, marking an increase of 18%.

  • Liquidity mining can bring about astonishing growth in liquidity in the short term. However, once the liquidity mining ends, it quickly reverts to a normal level or slightly above it. The short-term effects are significant, but the long-term outcomes are less than idea.

4.3 Volume Performance

During the liquidity mining period, the volume of the four pools not only didn't increase, but somewhat declined. Considering that volume is one of the most crucial indicators for the growth of a DEX, this suggests that increased liquidity does not necessarily promote a rise in volume.

  • During the liquidity mining period, the volume of the four pools saw a decrease, from 143093152 to 123489942, which is a decrease of 13.7%.

  • After the liquidity mining event ended, the liquidity (total ETH amount) in the four pools returned to pre-event levels, or even slightly increased, from 143093152 to 143603422, marking an increase of 0.4%.

4.4 Retention Analysis

Among the addresses that provided liquidity to the four rewarded pools on Uniswap during the liquidity mining period, those that are still active as liquidity providers on Uniswap are categorized as 'retained LP addresses'. In contrast, addresses that no longer contribute liquidity are labeled as 'lost LP addresses'.

  • We found that out of the 25,046 LP addresses attracted by liquidity mining, only 17% of those addresses are still providing liquidity.

  • Liquidity mining provided a total of 5,000,000 UNI as rewards. Given the current price of $6.17 per UNI, the total value of these rewards is approximately $30.85 million. If we consider these token rewards as a cost, and the 4,363 LPs that still provide liquidity as the long-term retained users, the Customer Acquisition Cost (CAC) is a staggering $7,077 per LP. [Image]

  • This article primarily discusses the long-term benefits airdrops and liquidity mining bring to the protocol from the user's perspective. A subsequent article will delve into a more detailed analysis from the LTV perspective, such as how much liquidity is contributed by the 17% of retained users.

5.Conclusion

  • While both liquidity mining and airdrops are strategies for user growth in protocols, they emphasize different aspects. Specifically, for DEXs, the ultimate goal of liquidity mining is to enhance the liquidity of pools, while the objective of airdrops is to encourage users to use the product as much as possible.

  • If we eventually unify both approaches from the perspective of retaining users (addresses), we can attempt to compare them. The granularity of an airdrop strategy can impact the final user retention rate. Pioneers of airdrop events had somewhat crude designs for their airdrop schemes.Emulating these pioneers, subsequent protocols optimized their airdrop strategies, resulting in higher retention rates and a lower CAC.

  • In comparison to meticulously designed airdrop strategies, early designs for liquidity mining were rudimentary. When we compare its CAC with that of airdrops, it tends to be on the higher side.

  • Overall, the acquisition cost for Crypto Protocols, ranging from $1000 to $10000, is significantly higher than that of traditional financial institutions, which is between $50 and $1500. This is understandable given that the market is still primarily focused on early adopters, resulting in a smaller TAM.

  • For the crypto industry to achieve long-term sustainability, continuous expansion of its user base is essential. One of the pressing challenges is the soaring user acquisition cost. On one side, advancements in industry infrastructure and regulatory compliance will make crypto more user-friendly to the general populace. ,Protocols can also consider adopting the data-driven, refined user growth strategies that have been successfully employed by Web2 companies.

  • Sixdegree Lab is exploring a data-driven approach to refined growth and operations for Web3 products. We are thrilled to have Rabbithole as our partner and to take the first step based on their new feature, Rabbithole Quest Terminal.

********************************************************************************

About Sixdegree

]]> sixdegreelab-3@newsletter.paragraph.com (sixdegreelab.eth) <![CDATA[Chapter 2: CAC - A review by SixDegree of Airdrop and Liquidity Mining]]> https://paragraph.com/@sixdegreelab-3/chapter-2-cac-a-review-by-sixdegree-of-airdrop-and-liquidity-mining aREEEBnLjTvmsTPgoXZK Wed, 20 Sep 2023 07:34:02 GMT Summary

  • We find out that airdrop CAC range from $1,000 to $10,000

  • Such CAC is much higher than traditional financial institutions at $50 to $1500. This reflects the crypto market's focus on early adopters and its smaller TAM.

  • Most protocols do not pay much attention to CAC as they simply see it as a way to build a strong community and bootstrap their network in the early days.

  • Though we agree it is also important to have an understanding of it and iterate on token distribution using quick feedback loops with systems such as onchain quests in order to avoid growth challenges.

  • We recommend protocols not do to one major airdrop and instead to have many microairdrops using data-driven strategy to build a strong holder base

  • Sixdegree can help you build such strategy with Rabbithole infrastructure. Read about our case study with ParaSwap using RabbitHole and onchain quests.

  • Contact us as contact@sixdegree.xyz and Follow us on Twitter

2.4 CAC Analysis

2.4.1 Definitions

CAC = airdropped token value / retained users post-airdrop

  • airdropped token value = airdropped tokens * current price (as of 2023-08-10)

    • We use the current price of the token here, as we believe it should be a price that is close to the intrinsic value of the token. Considering that the price will be pushed to an unreasonable position due to FOMO sentiment during airdrops, we ultimately chose the current price, which has been fully priced after a long period of market competition.

  • retained users post-airdrop = active users in the 4th month after airdrop

    • Each address is considered as a unique user.

    • Four months have passed since the Arbitrum airdrop. For protocol comparison, we're using the 4th month's performance as our metric.

2.4.2 CAC for Different Protocols

  • In the previous section, we discussed the retention rates of users who received airdrops from different projects. If we view token airdrops as a customer acquisition strategy, we can calculate the CAC for each project. Here, we choose the users who remained after the fourth month post-airdrop as the effective users retained from the token airdrop.

    • Despite Uniswap's airdropped users having a high retention rate in the fourth month, Uniswap paid a substantial cost for this (in Uni tokens), resulting in a staggering CAC of $11,208. Given that Uniswap was a pioneer in the airdrop mechanism, it's understandable that their airdrop rules weren't meticulously designed. Additionally, we can't solely evaluate based on the number of users and perhaps a high CAC is accompanied by a significant liquidity contribution to Uniswap.

    • Both Arbitrum and 1inch have CACs around $5,000. Considering that Arbitrum's airdrop scale was much larger than 1inch's, it's evident that Arbitrum exhibited better performance.

    • Considering that both Arbitrum and Optimism are L2 solutions, they are more comparable. Arbitrum outperforms Optimism in terms of retained users from the airdrop as well as CAC.

    • Due to Paraswap's overall smaller airdrop scale and their more meticulously designed airdrop rules, they achieved a relatively favorable CAC, around $1,000.

2.4.3 CAC VS Traditional Financial Institution

  • From a CAC perspective, Crypto Protocols incur a higher user acquisition cost via airdrops than traditional banks. Even the best performer, Paraswap, matches only the most expensive banks.

  • However, this is reasonable. The higher CAC cost is driven by the relative early stage of the market and the focus on acquiring early adopters, which by definition have a higher CAC.

  • Airdrop was first thought of as a single event in which it should not only create incentive for early adopters but also medium to long term adopters. The introduction of token incentives can indeed rapidly attract users in the early stages of development.

  • Given the increasingly fierce competition, Crypto Protocols need to move away from broad-brush user growth strategies. Instead, they should leverage token incentives for more refined user growth and operations.

  • Data-driven business growth is an inevitable path, and this approach has already been proven effective in traditional internet companies.

*****

About Sixdegree

]]> sixdegreelab-3@newsletter.paragraph.com (sixdegreelab.eth) <![CDATA[Chapter 1: Retention - A review by SixDegree of Airdrop and Liquidity Mining]]> https://paragraph.com/@sixdegreelab-3/chapter-1-retention-a-review-by-sixdegree-of-airdrop-and-liquidity-mining QWVlFwAgxDAkygWwEdQy Wed, 20 Sep 2023 06:59:55 GMT 00. Summary for Twitter

  • Airdrops have an average churn of 80% after four months even for top protocols

  • Selected airdrops including 1inch, Uniswap, Optimism, Arbitrum and ParaSwap have a retention rate under 20% after four months and under 15% after 12 months

  • The churn slowed down after the four month and remained stable for the best ones (e.g. Optimism) or continued to decrease for the less quality ones

  • A good airdrop strategy can prevent the token holding rate from entering a long-term decline.

  • Optimism's Airdrop Round 2 is a notable example where the holding rate curve of saw a noticeable increase on 2023-02-09 related to their Airdrop Round 2. Airdropped users are holding OP!

  • We recommend protocols not to do one major airdrop and instead to have many microairdrops using data-driven strategy to build a strong holder base

  • Sixdegree can help you build such strategy with Rabbithole infrastructure. Read about our case study with ParaSwap using RabbitHole and onchain quests.

  • Contact us as contact@sixdegree.xyz and Follow us on Twitter

0. Introduction

  • Welcome to the first installment of our series of data-driven articles. In this series, we aim to dissect the two pivotal token distribution mechanisms in the crypto sphere: airdrops and liquidity mining.

  • Our primary objective is to understand these mechanisms from the viewpoint of user growth, examining how they contribute to the protocols' long-term value and usefulness in the crypto economy

  • While both liquidity mining and airdrops are strategies for user growth in protocols, they emphasize different aspects. Specifically, for DEXs, the ultimate goal of liquidity mining is to enhance the liquidity of pools, while the objective of airdrops is to encourage users to use the product as much as possible.

  • If we eventually unify both approaches from the perspective of retaining users (addresses), we can attempt to compare them.

    • The granularity of an airdrop strategy can impact the final user retention rate. Pioneers of airdrop events had somewhat crude designs for their airdrop schemes.

    • Subsequent protocols, emulating these pioneers, optimized their airdrop strategies, resulting in higher retention rates and a lower Customer Acquisition Cost (CAC).

  • In comparison to meticulously designed airdrop strategies, early designs for liquidity mining were rudimentary. When we compare its CAC with that of airdrops, it tends to be on the higher side.

  • In this first chapter, we focus on airdrop retention. Please see below some key findings:

    • The aidrop retention seems to drop substantially until the 4th month and then remained somewhat stable for the best ones (e.g. Optimism) and then continued to decrease for the less quality ones (e.g. 1inch)

    • A good airdrop retention rate seems to be above 20% after the 4th month and 15% after the 12 months.

    • Most airdropped tokens are not held for the long term. Nearly all protocols see their token holding rate eventually drop to below 20%. A good airdrop strategy can prevent the token holding rate from entering a long-term decline, and Optimism's Airdrop Round 2 is a notable example:

  1. Background

    Welcome to the first instalment of our series of data-driven articles. In this series, we aim to dissect the two pivotal token distribution mechanisms in the crypto sphere: airdrops and liquidity mining.

    Our primary objective is to understand these mechanisms from the viewpoint of user growth, examining how they contribute to the protocols' long-term value and usefulness in the crypto economy. Central to our investigation are the metrics of CAC, retention, and the Lifetime Value (LTV) of a customer.

    Through meticulous analysis, we will shed light on how airdrops and liquidity mining individually and comparatively influence these key indicators. In this inaugural article, our focus narrows to the user retention rate and CAC.

    We will explore some of the industry's most notable projects: Uniswap, 1inch, Paraswap, Arbitrum, and Optimism, gleaning insights into how these projects utilize airdrops and liquidity mining to drive sustainable user growth.

  2. Airdrop Analysis

    1. 2.1 Retention Analysis

    2. 2.1.1 Definitions

    3. There are two distinct definitions of retention rate we use:

  • Each address is considered as a unique user.

  • Chain Retention: if a user makes a transaction on a specific chain in any month post-airdrop, they're considered a retained user for that month on that chain.

  • Project-Specific Retention: when a user interacts with a project's core contract (e.g., Uniswap, or any other project) at any month after the airdrop, they're deemed a retained user for that month.

For a detailed definition of retention rate and information on which contract-related data from the project is included in the retention statistics, please refer to the Google sheet below. https://docs.google.com/spreadsheets/d/1hFMvaJOm8ASUNUH-ZV7eiwzKB2CkrRKJBWS3f8rPpXU/edit#gid=0

2.1.2 Retention Cohort Chart

Arbitrum has one of the highest retention rate four months after its airdrop.
Arbitrum has one of the highest retention rate four months after its airdrop.

  • We aim to observe over as long a period as possible, but since Arbitrum only has data for four complete months, we are limited to considering the fourth month.

  • Based solely on the fourth month after the airdrop, Arbitrum (42%) and Uniswap (34.6%) demonstrate better user retention; both Optimism and Paraswap hover around 20%, while 1inch has the lowest performance at just 13%. For 1inch the token airdrop used to incentivize users did not result in long-term user stickiness.

  • The 'airdrop month' proportion is closely tied to distribution timing. Notably, 1inch's proportion is notably low due to the airdrop commencing towards the end of the month. Additionally, attention plays a crucial role. During Optimism & Arbitrum's airdrops, the absence of competing hot topics directs people's focus primarily towards the airdrop activities.

  • Note, given the inability to conduct a strictly rigorous controlled experiment, we've chosen to use the airdrop month as a baseline, defining the retention rate as the proportion of retained users in the Nth month following the airdrop compared to the total airdropped users. An underlying assumption here is that we're disregarding external environmental effects on user retention (e.g., retention rates are likely higher during a bull market compared to a bear market).

  • 2.3 Long-Term Holding Behavior Analysis

    • 2.3.1 Definitions

      Holding Rate = Tokens held by claiming addresses / Total claimed tokens

  • We use the Holding Rate to observe if the addresses receiving airdrops tend to hold onto the tokens they receive for the long term. This way, we can get a general idea of how people are handling the received airdrops.

  • Recognizing that not holding onto tokens doesn't always imply selling is crucialg. Tokens could be transferred to new wallets, used for staking, or involved in diverse processes. While it's challenging to accommodate all scenarios, this simplified approach still allows us to draw conclusions that are close to reality.

  • 2.3.2 Holding Rate for Different Protocols

  • In the long run, the holding rate of all addresses that received airdrops is gradually decreasing, and will eventually drop to below 20%.

  • As one of the earliest protocols to initiate airdrops, Uniswap has shown a steady decline curve, without any significant rebounds. This indicates that those who received the airdrop have little interest in holding Uniswap. This might be related to Uniswap's token model (purely a governance token).

  • The holding rate of 1inch experienced several rebounds during its decline (on 2021-12-01, 2022-06-03, and 2023-03-07). Upon verification, I found that the abnormal fluctuations are related to the token vesting of $1inch. Among the addresses that were airdropped 1inch, there was one address(0x46eea8d5b37d2db51f35c1bc8c50cbf80fb0ffe5) that obtained a large number of tokens multiple times through vesting.

  • The behavior of whales has a significant impact on the holding rate curve. For Paraswap, two strong rebounds (on 2022-11-10 and 2023-01-19) were related to whales, one of which was an address associated with the Fantom Foundation.

  • The holding rate curve of Optimism saw a noticeable increase on 2023-02-09, which is related to their Airdrop Round 2.

  • We can clearly observe that the holding rate for these airdropped addresses did not decline rapidly. To some extent, this implies that Airdrop Round 2 had a better effect than Round 1, with tokens being distributed to more suitable users. This is largely related to the different strategies adopted by Optimism for the two airdrop rounds.It is recommended that protocols planning future airdrops pay close attention to and study the detailed rules of Optimism's Round 2.

*****

About Sixdegree

]]> sixdegreelab-3@newsletter.paragraph.com (sixdegreelab.eth)