Airdrops became mainstream in the ICO boom years starting around 2016 as a means to incentivize users to promote a new token on social media for example. More recently, in 2020, decentralized exchange Uniswap changed the outlook on incentives and rewards when the ecosystem gave away tokens for free to anyone who had utilized the Uniswap platform before a specific date. The 400 UNI tokens distributed provided many investors with their first big break. Putting aside the popularity of airdrops, it’s a good time to consider how effective they are for users and for startups, and to look at both the upsides and downsides for this sometimes controversial mechanism for driving crypto growth, especially in a bear market.
A good way to start this analysis on the ‘state of airdrops’ is to begin with a little academic rigor! Late last year a quartet of academics took a close look at the rise of DEXs, including the role of airdrops and governance tokens, using data from CoinGecko. They found that DEXs typically use airdrops to reward their early supporters, serve as marketing tools to reach potential users on other DEXs. But they also found that, “airdrops can backfire, because they put governance tokens in the hand of individuals who do not believe in the long-term viability of the exchange and want to maximize their short-run returns. Moreover, airdrops may unintentionally signal that the tokens are lower quality, influencing expectations about the exchange’s longevity.”
