Why 88% of Token Airdrops Are Dead on Arrival And How to Pick the Winners

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With over $20 billion distributed since 2017, crypto airdrops have become a popular marketing tactic. Although these events generate significant buzz, potentially leading to a short-term price surge, 88% of airdropped tokens lose value within three months.

According to recent reports by DappRadar, this notable trend of crypto airdrops underscores the “gap between short-term hype and long-term sustainability.” But what’s behind this paradox, and how can projects buck the trend?

As the crypto landscape keeps evolving, it is important to analyze the effectiveness of airdrops as a growth strategy and consider the reasons for their commonly failed attempts. From the distribution of tokens to product-market fit, to market conditions, to community buy-in, the success of the airdrop is a multifaceted approach to considerations.

88% Crypto Airdrops Fail, Says DappRadar

Sara Gherghelas, an analyst at DappRadar, noted on September 18 that crypto projects have distributed more than $20 billion in airdrops since 2017. But even that interesting figure underscored how rapidly a token can get caught in value erosion after its release, as 88% of tokens that airdrop recipients receive have historically lost value.

DappRadar’s Head of Content, Robert Hoogendoorn, explained that the impact of an airdrop is “dependent on the distribution of the token,” and projects should, ideally, get their tokens into “the hands of holders who are loyal and committed, referred to as ‘diamond hands’.” Hoogendoorn added,

“Some of the more successful airdrops used phased distribution, for example, Optimism, or very targeted distribution, as ways to limit the sell-off by the community. However, there’s not one success recipe, and it all comes down to distribution, product-market fit, and token utility…

Moreover, general market trends have a high impact on airdrop valuations as well. A successful airdrop manages to keep the community interested in the product, even after deploying the token.”

In recent years, particularly in bull markets, crypto airdrops have become increasingly common, and projects are developing ways to offer airdrops in more unique ways – on-chain engagement, social media engagement, liquidity provision drops. However, as Hoogendoorn mentions, the industry should do a better job of recognizing “airdrops” and “dropping” based on on-chain activity, as well as the user’s trading behavior and social media reputation.

As Hoogendoorn notes, the trend is shifting towards reputation-based airdrop distributions, where projects consider social media activity and utilize engagement platforms to allocate tokens to genuine community members.

Why Do These Crypto Airdrops Fail?

Notably, Azura Jackson Denka attributed the poor performance of many airdropped tokens to their association with fundamentally flawed protocols that lack real adoption and revenue generation. He emphasized that no amount of financial manipulation or user incentivization can compensate for a weak underlying asset.

However, Denka noted that even poorly structured airdrops can succeed if tied to a strong or growing product, which will eventually appreciate in value over time. The success of Hyperliquid‘s airdrop launch, which prioritized community involvement and excluded venture capitalists, serves as a notable example of this principle in action.

He added that airdrops would become less prominent in the long run, as initial coin offerings (ICOs) gain traction. Instead of airdrops, investors will pay upfront for tokens before they’re listed on the market, similar to traditional initial public offerings (IPOs) but using crypto tokens. He noted,

“No other financial market in the world gives away free equity to their users. Uber didn’t do this, Robinhood didn’t do this, and Facebook didn’t do this…We’ll look back on the popularity of airdrops as a temporary blip in the broader history of crypto markets, though they’ll always exist.”

Kanny Lee, CEO of SecondSwap, highlights liquidity as a major challenge for airdrops, where projects often release too much liquidity too quickly, causing token values to drop. Successful airdrops, he notes, focus on rewarding users for ongoing activity and using gradual unlock schedules to maintain liquidity.

In his opinion, sustainable liquidity should be the main goal of any airdrop design, emphasizing the long-term existence of the token over the collective distribution to a large audience, and he anticipates trends surrounding rewarding “simply holding tokens” will demand not only a higher distribution of liquidity, but also lessen the damage of downside deviations to minimize price fluctuations.

Conclusion

In summary, while crypto airdrops and rewards have received much attention, there is no evidence to confirm whether there will be real success in the long term, with 88% of tokens losing value in months. Sustainability will require projects to focus on distributed thinking around token rewards, the ability to engage with those around the community, and having sustainable liquidity moving forward.

Frequently Asked Questions

1. Why do most crypto airdrops fail?
   Most crypto airdrops fail due to poor token distribution, lack of product-market fit, and unsustainable liquidity.
2. What makes a successful crypto airdrop?
   A successful crypto airdrop requires thoughtful token distribution, genuine community engagement, and sustainable liquidity.
3. What’s the future of crypto airdrops?
   The future of crypto airdrops may involve a shift towards reputation-based distributions and traditional fundraising models like initial coin offerings (ICOs).

Glossary

• Airdrop: Distribution of free tokens or coins to a large number of wallet addresses.
• Liquidity: Ability to buy or sell tokens quickly without significantly affecting market price.
• ICO (Initial Coin Offering): Fundraising method where investors buy tokens before they’re listed on the market.
• Token Utility: Practical use or value of a token within a specific ecosystem.