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Airdrops have emerged as a powerful tool for token distribution, user acquisition, and community building as the blockchain industry has grown. They provide unique opportunities for projects to differentiate themselves, incentivize desired behavior, and forge long-term relationships with their user base. But the question remains: Do airdrops work?
Based on my previous research on Corporate Finance Journal, the answer — at least according to the data so far — is “yes”. But my new research with Kristof Lommers and Lieven Verboven highlights that their efficacy depends on careful design, clear goals and strategic execution.
The essence of a successful airdrop lies in the careful selection of eligibility criteria and incentives. These criteria can range from simple (such as owning a certain token) to more complex (such as exhibiting certain behavior on-chain), but must align with the goals of the airdrop. For example, if the goal is to reward loyal users, then the eligibility criteria could include users holding certain tokens for a certain amount of time. Likewise, if the goal is to promote a new protocol, then the criteria can interact with it.
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Incentives, on the other hand, can take many forms — from direct token rewards to exclusive access to new features or services. The key is striking a balance between being attractive enough to engage users and still being economically viable for the project. For example, the Blur airdrop integrates social media activity into its eligibility criteria. Instead of simply giving out tokens to certain existing users or token holders, Blur incentivizes users to share airdrops on social media platforms and encourages referrals among their network to earn additional tokens. This method not only widens the reach of its airdrop but also fosters a sense of community as users actively participate in spreading the word about Blur.
Timing also plays an important role. Launching an airdrop too early in a project’s lifecycle may lead to distribution of tokens among users who lack genuine interest, while a late-stage airdrop may fail to generate the desired buzz. The optimal timing often coincides with the project’s token launch, creating early distribution and liquidity. As previous research by Yukun Liu and Aleh Tsyvinski has highlighted, momentum in the market plays a large role in explaining token prices.
However, airdrops are not without challenges. One of the most serious risks is a Sybil attack, in which a bad actor creates multiple identities to claim a disproportionate share of tokens. Mitigating this risk requires a mix of strategies, including upfront whitelisting of users, increasing barriers to entry, and implementing Sybil attack detection mechanisms.
Especially in the last two years, the project must take into account the regulatory environment. Although non-fungible tokens (NFTs) have been largely exempt from strict enforcement action by the Securities and Exchange Commission, fungible tokens are more in their view, and the distribution of tokens coupled with the expectation of future returns could increase legal risk. Given the regulatory gray zone around tokens, projects must ensure that they do not issue securities by mistake. And with most blockchain networks being public, privacy concerns may arise, potentially exposing sensitive information about airdrop recipients.
So, how much token supply should be allocated to the airdrop? There is no one-size-fits-all answer. The project’s unique goals and strategy should guide this decision. However, research shows that on average, teams allocate 7.5% of their token supply to the airdrop community.
One of the often overlooked aspects of airdrops is their potential to harness the power of network effects. By incentivizing sharing, airdrops can amplify their impact, attract more users to the project ecosystem and create a self-reinforcing cycle of growth and value creation.
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The final consideration to keep in mind is the simplicity of the airdrop. Convoluted eligibility criteria will confuse people — even if they are intelligently and rationally designed. Airdrops should be an easy and enjoyable experience for users, especially for non-crypto users. Collaborating with a wallet provider can simplify the process for those users, making airdrops more accessible and attractive.
A good analogy is in the context of monetary policy. When the United States Federal Reserve articulates simple policy rules for how it will deal with inflation, and then sticks to them, markets react much more positively than when they deviate from the rules. The same goes for airdrops: Design with care, but keep it simple and transparent.
Airdrops can indeed work very well if they are designed and executed properly. They offer an attractive avenue for projects to stand out in the bustling blockchain landscape, encouraging user engagement and community development.
But their success was no accident — it was the product of thoughtful design, clear goals, and strategic execution. Especially with the many potential airdrops emerging on the horizon with Sei Network, Sui, Aptos and others, understanding and harnessing the power of airdrops will become increasingly important for projects looking to thrive in this dynamic space.
Christos Makridis is the founder and CEO of Dainamic, a financial technology startup that uses artificial intelligence to improve forecasting, and serves as a research affiliate at Stanford University and the University of Nicosia, among other positions. He holds a doctorate in economics and management science and engineering from Stanford University.
This article is for general informational purposes and is not intended to and should not be construed as legal or investment advice. The views, thoughts and opinions expressed here are those of the authors themselves and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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