Airdrops are a standard practice for brand spanking new crypto projects, but in response to data collected during the last seven years, as much as 88% of airdropped tokens lose value inside three months.
A September 18 report from DappRadar analyst Sara Gherghelas found that projects have distributed greater than $20 billion in airdrops since 2017, but 88% of airdrops have lost value inside a number of months, “illustrating the gap between short-term hype and long-term sustainability.”
Speaking to Cointelegraph, Robert Hoogendoorn, Head of Content at DappRadar, said that token distribution is the important thing to success in an airdrop; Projects need to put their token within the hands of diamond holders.
Source: DappRadar
“Some of the more successful airdrops used phased distribution, for instance Optimism or a really targeted distribution to limit community sell-offs. However, there isn’t any single recipe for achievement and all of it will depend on distribution, product-market fit and token utility,” he said.
“In addition, general market trends even have a big impact on airdrop valuations. A successful airdrop is one which manages to take care of community interest within the product, even after the token is deployed.”
The first recorded crypto airdrop occurred in 2014, when the Auroracoin project airdropped its native coin AUR as an Icelandic alternative to Bitcoin.
Crypto projects must select holders rigorously
In the last decade since Auroracoin's launch, Hoogendoorn said airdrops have change into more common during bull markets and have evolved with measures similar to on-chain engagement, social media campaigns and liquidity provision.
Hoogendoorn, nevertheless, argues that projects have to be more careful when analyzing a user’s on-chain activity, trading behavior, and even “status” on social media to avoid cases of airdrop hunting and farming.
“We are already seeing a trend where airdrop distribution leverages status, for instance by integrating social media activity. Additionally, various projects have used engagement and reward platforms to distribute a minimum of a portion of their airdrop allocation,” he said.
Airdrops from bad projects are doomed to failure
Jackson Denka, CEO of Azura, a DeFi platform backed by the Winklevoss twins, told Cointelegraph that many airdropped tokens lose value because they’re tied to protocols which can be fundamentally unstable, “overlook real adoption, and fail to generate revenue.”
“No amount of economic engineering, incentives or bribery of users can change the indisputable fact that some assets are price investing in than others,” he said.
“Airdrops, regardless of how flawed their structure, if coupled with a very good/growing product, will increase in price over a protracted enough time horizon.”
Hyperliquid was praised for delivering the most effective airdrop launch ever in November 2024 by excluding enterprise capitalists and consistently encouraging community participation.
In the long run, Denka expects airdrops to fade into the background as more initial coin offerings emerge and investors pay to accumulate tokens before they’re released on the open market. This is practically an IPO, but uses crypto tokens.
“No other financial market on the planet gives away free equity to its users. Uber hasn't done that, Robinhood hasn't done that and Facebook hasn't done that,” he said.
“We view the recognition of airdrops as a brief blip within the history of crypto markets, although they are going to all the time be around.”
Liquidity also must be addressed
Another key problem with airdrops is liquidity. Kanny Lee, CEO of SecondSwap, a marketplace for trading locked tokens, told Cointelegraph that airdrops lose value since the projects behind them release an excessive amount of liquidity too quickly and flood the market with tokens.
According to Lee, two recent successful examples of airdrops rewarded users for sustained activity, which helped maintain liquidity even after initial volatility, and utilized a phased release schedule so that offer entered the market regularly.
“Both approaches are based on the identical principle: value lasts longer when users stay engaged and liquidity builds regularly,” he added.
Lee believes that trends of rewarding users for holding tokens will change into standard practice in the longer term.
“Sustainable liquidity ought to be the foremost goal of any airdrop design. It's not about what number of wallets receive tokens, but how long those tokens remain lively out there,” he said.
“Programs that reward continued participation or regularly release supply help prevent the sharp corrections that follow mass distributions.”
