Airdrops are among the most sought-after events for on-chain project users. They are the distribution of a protocol's token, usually to previous users. The goal is to reward loyal consumers and boost the product's user stickiness. But, things do not always proceed as planned.

The first thing to grasp is why protocols give out native tokens worth millions of dollars. There are four primary reasons for doing so:

Developing an organic holder base: Programs that will reward previous users of their platform are a good example. In general, more user engagement results in a larger proportion of tokens being airdropped. The reasoning is that if this group followed the procedure, they were more likely to do so before there was any economic incentive to do so. They are more likely to put the token to good use rather than sell it for a profit. Overall, it is a much superior method of increasing token distribution and, more significantly, to true protocol users.
Free marketing: Releasing a project's token does two objectives for previous users and sparks a major marketing campaign. By distributing tokens, the project may be completed by distributing a part of the supplies to target groups to generate a "buzz" recipients will often tweet about their airdrop and, as a result, participate in free project promotion.
Incentives for usage: Airdrops are either unexpected or advertised beforehand. In the latter situation, they serve as an incentive mechanism to take advantage of the platform. Users are less inclined to abandon a platform if it is really excellent after getting the airdrop. It is akin to free marketing, focused on user acquisition as well as retention.
Vampire attack: There have been various cases when a project has been attacked by vampires. It distributed its token to a competitor's user base through an airdrop. Users who claim the airdrop must engage with the platform in some manner. The concept is comparable to rewarding platform use, but unlike organic acquisition, it is aimed toward acquisition through brutal force.

Airdrops have their own set of issues, the most significant of which is airdrop farming. This is particularly true for programs that publicize an impending airdrop. Airdrop farmers are strictly profit-motivated organizations that use a platform to receive the airdrop and then sell it for a profit, making the benefits of an airdrop something of a double-edged sword.

To the uninformed, all airdrops and their related consequences may seem to be extremely identical. Although they have comparable aims and consequences, the actions and the costs connected with each airdrop vary greatly. Let's get started.

Analyzing UNI airdrop

Bitcoin has risen from a COVID low of $4k to a high of $12.50k before falling to $9.9k. At the same time, the golden "DeFi Summer" was in its last innings, with all major tokens actively correcting. Uniswap announced its retroactive airdrop to approximately 300,000 addresses in September 2020. The airdrop worked as both a market stimulant and a retaliation to SushiSwap's vampire assault.

Uniswap restricted 60% of its initial token supply for community members, with the remaining 15% airdropped to liquidity providers (LPs), users, and developers.

The traders received the vast bulk of the allotment at 100.61M UNI.
SOCKS holders/redeemers received 220k UNI, whereas LPs received 49.1M UNI.

Around two years have passed since the airdrop, approximately 91.02% of the tokens have been claimed. Approximately 98.73% of the 217k wallets that claimed the UNI airdrop got between 400 and 990 tokens.

On the opposite end of the scale, around 0.11%, or 236 wallets, got between 27k and 210k UNI. Power users, huge LPs, and SOCKS holders/redeemers make up these wallets.

Humans adore free money, and it's no surprise that the vast majority of claimants sold their entire claim. Yet, a tiny number of beneficiaries did not sell but instead raised their allocation.

After the airdrop, Uniswap operated a thirty-day liquidity mining campaign that enabled LPs to buy extra UNI tokens. The price of the coin suffered significantly during liquidity mining efforts in general, and UNI was no exception.

Throughout the campaign, UNI fell by 80% to a low of $1.75. Following that, UNI increased by 1,200% to a high of $45. It's worth mentioning that UNI started rallying before the campaign's finale.

When 150M free tokens and an extra 20M tokens through liquidity mining enter the market within a month, it becomes impossible to maintain the price. The potential sell pressure is around $623.73M when computed using the VPVR of the first range ($3.669) times 170M UNI. When combined with minimal reason to keep the token, the 80% loss seems more comprehensible.

Yet, the airdrop and following liquidity mining (LM) initiative effectively increased the TVL, or liquidity and trading volume on Uniswap. The graph does an excellent job of demonstrating the magnitude of the growth.

UNI TVL after airdrop

Source: Defillama

As the selling from the liquidity mining stopped, UNI witnessed positive price activity.

The program and airdrop recipients were terminated. Being the most populous DEX in terms of volume and TVL, as well as the brand name and potential for being the top DEX in the market. Uniswap gained a lot of traction from the airdrop.

When the fee switch was turned on, i.e., income sharing with token holders, everyone wanted a piece of the pie. A combination of these reasons fueled UNI's resurgence.

A look into LOOKS

We have one of the most renowned airdrops in history, at least at first. LooksRare restricted 12% of LOOKS supply for the airdrop, which required a minimum of 3 ETH trading volume on OpenSea. As a consequence, the airdrop was seen as a direct assault on OpenSea, dubbed a "vampire strike."

The airdrop was graded dependent on how much volume was done on OpenSea.

LOOKS airdrop rules

Source: Looksrare

The graphic clearly shows that the bulk of the tokens were set aside for each category.

Most airdrops are allocated for power users. The proportion of total claimed wallets(number of claimed wallets for X tier/total claimed wallets) was much higher.

When compared to Uniswap's airdrop, it is more uniform. However, the proportion of claimed tokens had a three-month return of 81.97%, which was lower than UNI.

Consequently, the proportion of claimed wallets grows as the cost of not claiming kept rising.

In comparison, just 49% of eligible wallets in Tier 1 claimed their airdrop, however, the claim percentage for the next three tiers was above 90%.

LooksRare introduced volume and staking incentives upon debut. The LOOKS tokens granted to traders on the site are referred to as rewards. Every buyer and seller on the platform receives more tokens (except for private NFT trades). Staking rewards are LOOKS tokens plus trading fees (in WETH) collected and given to stakers.

Staking incentives were once fairly large since people washed traded to acquire LOOKS and WETH. As a consequence, there was a significant incentive for staking, and so for LOOKS.

The incentives were effective in increasing volume. Nevertheless, when the cash worth of incentives began to decline owing to lower emissions and a reduction in the price of Gasoline, volume began to decline.

LOOKS volume and incentives

Source: Tokenterminal

LOOKS saw a 2x boost in the first few days of trading, but as the prizes increased,

As the news began to circulate, the price just couldn't keep up with the selling pressure.

Despite the fact that the financial worth of incentives is much smaller than it was originally, LOOKS couldn't find footing. It fell victim to the classic death spiral: reduced incentives > lower volume > even lower incentives > even lower volume > repeated.

The price behavior of LOOKS contrasts sharply with that of UNI, which is a fantastic comparison. The consequences of continual emissions on the price of a token are shown in this example. LOOKS' fee-sharing feature was/is the token's USP and the major motivation for holding/staking the token. Yet, volume and, by extension, fees have fallen significantly, resulting in decreased incentives to hold/purchase the token. To summarize, early incentive-driven protocol use often fails to develop persistent user participation.

>>> Read more: X2Y2 versus LooksRare: Incentivized NFT marketplace battle

APE airdrop event

Yuga Labs, the king of hype, did not disappoint with its APE airdrop to BAYC (10,094 APE per BAYC), MAYC (2,042 APE per MAYC), and BAKC holders (856 APE per BAKC). 15,717 wallets were able to claim 15% of the entire APE supply or 150M APE. The claim rate is 95.81%, which is the highest on our list. An airdrop of 150 million coins equated to around $1.95 billion based on the first day's closing price. Some selling occurred, resulting in a 26% drop in price, but APE swiftly rebounded, seeing a 190% increase in price before a long-form correction.

APE is intended to be a utility and governance token. At the time of the debut, only the less desired of the two functions was granted. Yuga Labs soon after announced a land auction for their Otherside metaverse. The land NFTs were only available via APE, resulting in a $27B FDV estimated at the highs. Three days before the sale, APE achieved its ATH. According to the distribution of APE, 55% of the wallets got between 2k and 5k APE. The largest recipient received 3.19 million APE, which is worth $17 million at the current market price and $86 million at the peak. Without an operational product, determining the success of the airdrop becomes impossible. But, we may examine the volume and floor price of BAYC, MAYC, and BAKC before and after the airdrop to determine if the airdrop was effective in creating fresh interest.

After the airdrop, BAYC, MAYC, and BAKC volumes increased considerably. This was because people wanted to use these NFTs to claim the airdrop. A flash-loan attack was used in certain cases to borrow NFTs from the NFTX vault, claim the airdrop, then return the NFTs. Traffic increased significantly again in May as the Otherside property auction approached. But compared to the surge in volumes, the post-airdrop spike in floor pricing was moderate. Yet, prior to the land sale (denoted by the vertical white line) in May of last year, floor prices saw a similar surge. Overall, it seems that the airdrop was effective in creating a "buzz" in the near term but failed to sustain it in any significant sense. In both ETH and USD terms, the NFTs and APE are down significantly from their highs. While it is difficult to argue against the overall performance of their NFTs, the success of APE is debatable. It lacks any actual, long-term usefulness, as seen by its price movement. The inclusion of a "staking module" for APE to obtain additional APE seems pointless since all it does in the short term is decreased sale pressure. It is difficult to envision APE having prolonged positive price action until they offer a compelling use case.

OP summer

Optimism (OP)'s airdrop was somewhat of a known secret. Over 250k addresses are qualified for 5% of the total supply (214.74M OP). Moreover, Optimism revealed upcoming airdrops totaling 19% of OP's entire supply. The qualifying conditions were unusual. Instead of just airdropping the tokens to Optimism users, they also included DAO voters, Gitcoin contributors, multi-sig signers, and even those priced out of Ethereum. The parameters for airdrops were not mutually exclusive. In other words, an Optimism user who also voted in the DAO would have their airdrop amount multiplied. Moreover, Optimism used specific techniques to screen out airdrop farmers — users who conduct certain actions only for the sake of receiving free tokens rather than actual usage. The claim rate for the first round of the OP airdrop was 75.47%. More than 80% of claimants got less than 1,000 OP. Concerns about the high FDV of Optimism started to circulate after the airdrop. This was accompanied by an odd proposal that basically barred addresses that sold their OP (got during airdrop #1) from getting subsequent airdrops. The plan received a lot of attention but didn't pass since it caused quite a controversy on Twitter. OP is a token for governance. But, at this early stage, the work of the Optimism Foundation in creating the Optimism stack and forging off-chain consensus is significantly more crucial.

OP, as a token, lacks an organic use case and usefulness and is being used as a governance token to reach an agreement on ecosystem-specific choices. There is potential to weave the token into the network as technology progresses, and the sequencer becomes decentralized, but we are still a long way from determining the best token format for rollups. Price movement was sluggish due to OP's lack of clear-cut value accrual and a market-wide decline. OP fell by 80% in 18 days, only to reverse the whole correction in a month and a half, thereby speeding up a market cycle. But did OP succeed in increasing its TVL post-airdrop?

Optimism TVL surge

Indeed, the first green dot on the graphic represents the date of the first airdrop. The TVL had a two-fold gain, followed by a sharp pullback. But, the TVL has been steadily rising since then, and it is now around four times what it was before the airdrop. The rise isn't restricted to the TVL; the price of OP just reached a new high at $3.2. Optimism revealed a surprising 11.74M OP airdrop to almost 300,000 wallets. Only governance delegation incentives and gas use rewards were included in the qualifying requirements. Unlike the first airdrop, there was no need to claim the airdrop since it was delivered immediately to all eligible addresses. The majority of receivers received less than ten OP. Despite the fact that airdrop #2 was just 5.5% of the first, the highest OP obtained by any wallet was one-third of the maximum during the first (10,462 OP vs. 32,432 OP). When it comes to the minimal quantity of OP received, the difference is substantially greater, with airdrop #2 accounting for 0.84% of airdrop #1. (2.3 OP vs. 271.83 OP). Despite the fact that the majority of receivers got less than 10 OP, the highest quantity of OP was awarded to the 100-500 bucket, followed by the 1,000-5,000 bucket, both of which account for more than half of the tokens. After airdrop #2, OP fell by 28.2% (high to low) in two days because holders didn't appreciate the surprise. Optimism's airdrop #1 was a success in terms of increasing activity. The prospect of future airdrops acts as an inducement, resulting in sustained levels of consumption. This, however, comes at a cost to current token holders. If the activity was fueled by token incentives, and history is any guide, activity levels should collapse in the absence of token incentives.

BLUR airdrop breakdown

Blur (BLUR) launched its marketplace on October 19th, 2022, along with its first airdrop. Anyone who has traded NFTs in the six months leading up to the launch was eligible for the airdrop. Blur also announced airdrops 2 and 3 for active platform users. The marketplace has no fees, and royalties are voluntary. Blur gained substantial market share by bringing unique features and addressing challenges that plagued previous markets. The first wave of airdrops received 12% of the total supply or 360 million BLUR. Another 39% of the total supply has been set aside for the community, which will benefit from incentive programs, contributor awards, and community activities. 70% of the recipients received fewer than 1,000 BLUR. The largest recipient received 3.2M BLUR and has not sold any. What's notable is that the claim rate is over 94% within a week of the airdrop, second only to APE. BLUR moved from a low of $0.5 to a high of $1.38, a 176% rise. Despite the increase in value, around 30.6% of wallets have sold all of their tokens on-chain. 3.14% have sold some, 2.7% have sold and purchased, and 0.76% have increased their airdrop. It's tough to judge the conduct of some of the recipient wallets that have moved their BLUR to another address. They might be holding or selling from the new location. Nonetheless, 62.8% of wallets either contain or have moved funds (and perhaps sold).

Blur's marketplace airdrop and general debut were a huge success. Blur performed a fraction of OpenSea's volume at first. But, since December, Blur's trading volume has surpassed that of OpenSea.

Blur flip opensea

Source: Dune Analytics

The user count has been underperforming for some time but is rapidly increasing as it approaches parity with OpenSea. The whole launch was so successful that OpenSea felt endangered and had to make changes to prevent slipping into obscurity. At the same time, it is impossible to tell if the traction is due to BLUR incentives or a true preference for the marketplace. Maybe it's a mix of the two. OpenSea's monopolistic advantage and inability to read the room have long been questioned by creators and traders. Maybe the early activity on Blur is due to token incentives, but the lack of a better option may result in ongoing levels of interest – even if token incentives are not there. So, what can we glean from all of these case studies? Airdrops are an excellent approach for projects to build an organic holder base, get free promotions, motivate usage, and gain additional users. As compared to ICOs and other methods of token distribution, they are seen as preferable. They do, however, have flaws, the most notable of which is their vulnerability to airdrop farming. Projects must perform a delicate balancing act in order to ensure fair token distribution, limit mercenary token extraction as much as possible, perform economic gymnastics to keep demand and supply in check and deliver a solid product that ensures sustained usage in the absence of token incentives. There were several airdrops during the previous cycle that were not included in this report. The reason for this is that the majority of these airdrops had little impact on the project's success.

Conclusion

Even with the chosen set of projects included in this article, the outcomes have been uneven. In all instances, there was an increase in activity both before and after the airdrop. Yet, only a handful have been able to continue this activity while seeing positive price movement. Apart from Uniswap, every project features a continuing token incentive system. Optimism and Blur have improved activity and reasonable token performance; however, APE and LOOKS do not. Optimism's continued incentives are complemented with a quality product and story that explain recent price movement. Even if OP, like UNI, has little use other than governance, the brand name and product make up for it. Blur is a new entry that competes with OpenSea. BLUR has a good product despite having token incentives and no use other than governance. Blur is still in its early stages, so predicting its long-term viability is tricky, particularly when the token incentives run out. But the general picture seems to be similar to Uniswap and Optimism, and it shouldn't surprise anybody if the end is the same. LooksRare offers a fee-sharing structure as well as significant token utility. Yet, increased competition and decreasing token incentives have resulted in lesser activity and, as a result, volume. ApeCoin has limited usefulness and significant token incentives. Except for staking, there is no reason to keep or acquire the token since ownership increases, but liquidity does not, resulting in a return to square one. APE may be regarded as a proxy bet on Yuga Labs, and it seems that few are betting on this side.

Disclaimer:
This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.

A complete guide to analyzing the airdrop behavior