Defiant Data Dive: Airdrops are Mostly Fool's Gold…But They Have Their Uses

Who doesn’t love free money?

Airdrops have become one of the most popular features of crypto. By giving away free tokens to investors, they epitomized the easy money to be made in the blockchain world. Airdrops also became a potent way to draw users and build critical mass on platforms.

Yet there is a downside no one is talking about. Many of crypto’s brightest minds suspect airdrops create buzz but fail to create long-term value and attract real customers to web3 protocols instead of tourists.

“Airdrops are effectively an expensive customer acquisition tool that hasn’t proven to lead to long-term users,” Messari analyst Dustin Teander told The Defiant.

More worrisome, airdrops have been criticized as being little more than pump-and-dump schemes. Rabbithole, a web3 education platform, recently airdropped NFT NYC attendees an NFT that said “Airdrops are killing web3”.

“We need to focus on the long term with web3 with high value contributors – not necessarily scaling via mass airdrop,” Brennen Schlueter, Head of Marketing at Rabbithole, told The Defiant.

To determine whether airdrops are beneficial for protocols, we analyzed the nine largest ones: Uniswap, Optimism, LooksRare, ENS, dYdX, 1inch, Ampleforth, Gitcoin, and Tornado Cash.

The Defiant found that the data show that airdrops tend to help protocols raise their Total Value Locked (TVL), trading volume, and number of token holders in the short term. While massive airdrops are helpful for mustering hype and awareness, many recipients just dump the token and move on.

Perhaps a better use of airdrops would be to reward and retain current core users.

Uniswap

Uniswap is an open-source protocol for trading ERC20 tokens on Ethereum. With more than $1.1T in trading volume, it is the leading decentralized exchange.

The Drop: On September 17, 2020, Uniswap kicked off an airdrop that let 195,278 addresses claim an average of 618 $UNI tokens apiece. Using the $5.03 UNI price from September 17, Uniswap distributed $3,108 per user.

Considering the airdrop recipients already used Uniswap, the true customer acquisition cost is probably much higher. Many of these recipients dumped the token, and by the end of October, the number of holders had fallen 46%, to 104,869.

Verdict: From an activity perspective, the airdrop worked . On the day before the airdrop began, Total Value Locked (TVL) was $915.53M. Just one month later, Uniswap’s TVL was up 319% to $2.92B. Trading volume more than doubled from $1.8B in September 2020 to $3.8B in March 2021.

“Uniswap’s airdrop was driven by a commitment to decentralized systems and became a model for web3 protocols that reward early users through ownership and governance participation,” a Uniswap spokesperson wrote last September

Uniswap TVL. Source: The Defiant Terminal

Optimism

Optimism is a Layer 2 scaling solution for the Ethereum network. On May 31 it quietly announced an airdrop on the cusp of the bear market.

The Drop: In the first month, 140,590 addresses claimed the airdrop OP with an average of 1,087 OP tokens worth $1,728 based on the May 31 price. With the total number of token holders dropping to 95,790 as of July 26, that means more than 40,000 wallets dumped their OP.

The Verdict: Following the airdrop, Optimism has not seen returns in terms of TVL or trading volume. On May 31, TVL was 294.5M. A month later, TVL stood at $281.6M. OP trading volume was over $5B in June, but after the first week of July, it has dropped to less than $500M.

Airdrop Recipient Breakdown Source:Dune

LooksRare

In January 2022, LooksRare, a new NFT marketplace, cooked up an airdrop of $LOOKS tokens to lure away high-volume users from OpenSea, the market leader.

The Drop: By the end of January, 121,404 addresses claimed an average of 962 $LOOKS tokens apiece, worth $2,502 based on the price on January 10. As of mid-July, nearly half of the recipients have dumped their tokens: 64,736 wallets now hold $LOOKS.

The Verdict: LooksRare’s NFT trading volume has followed a similar trend, dropping by half, to $1B in June, from $2B in February..

LooksRare Daily USD Volume via Dune

ENS

Ethereum Name Service (ENS) is a protocol that allows users to buy usernames for their blockchain wallets. With over 1.12M names registered by 406K owners, you’ve probably seen a .eth username on Twitter.

The Drop: Early adopters were airdropped $ENS tokens starting on November 8, 2021, right at the peak of the hype cycle. By the end of the month, 90,154 accounts had claimed the airdrop, and over $8B worth of $ENS was traded in November.

The Verdict: While $ENS may be down to 58,356 tokenholders, a drop of 35%, the airdrop hype definitely helped ENS and .eth names become more popular. In the month prior to the airdrop, only 27,822 .eth names were registered; November boasted 89,906 addresses registered. Domain registrations have fluctuated since November, but have never dropped under pre-airdrop levels.

Monthly ENS Registrations.

dYdX

dYdX is a decentralized derivatives platform that raised a $65M Series C round led by Paradigm in June. dYdX made headlines last month for planning a pivot to its own blockchain in the Cosmos ecosystem.

The Drop: On August 2, dYdX began an airdrop that saw 28,799 addresses claim an average of 10,873 $DYDX by the end of September. Their acquisition cost per user was $38,878 based on the price on August 3 and the number of token holders had dropped 33% by October 1 to 19,276.

The Verdict: While it’s clear that people dumped the coin, dYdX grew tremendously from the airdrop. dYdX’s TVL grew from $188M on Aug. 2. It’s now a household name in crypto and competes with centralized exchanges like Binance and FTX.

dYdX TVL via The Defiant Terminal

1inch

1inch is an aggregator of decentralized exchanges, allowing users to source the best prices for their trades. It has done over $224B in trading volume across 19.7M trades.

The Drop: On December 24, 2020, the venture airdropped a 1INCH token right in time for Christmas. In the first month, 32,194 addresses claimed an average of 1,911 1INCH apiece. Based on the 1INCH price on December 25, 1INCH gave out $4,434 per eligible address.

“Unlike many others, our initial token distribution aimed not to attract new users but to encourage existing users,” 1INCH’s Pavel Kruglov told The Defiant. “The goal was also to distribute the tokens fairly among the community, and we can now say that the token has an excellent distribution among the holders: almost 90,000 in total, and no one owns more than 4% of all tokens.”

The Verdict: While 1INCH’s goal was to distribute their token as a reward to early users, the company’s TVL definitely benefited from launching a token. On December 25, 1INCH’s TVL stood at $58.23M. One month later, TVL was up to $873M thanks to generous liquidity mining incentives.

After peaking at $2.32B on February 13, 2021, TVL has since fallen 99.7% to $6.78M as of July 26.

1INCH TVL via DeFi Pulse

Ampleforth

Ampleforth created one of the first algorithmic stablecoins called AMPL. Like most algorithmic stablecoins, it hasn’t done too well this year. Let’s check out their airdrop.

Ampleforth says AMPL isn’t a stablecoin. Instead, they define AMPL as a decentralized unit of account “pegged to the 2019 USD, and its supply expansions/contractions target that 2019 USD price rather than today’s USD.”

The Drop: In April 2021, Ampleforth airdropped an average of 230 of its FORTH governance token to 37,369 wallets. Despite an average gift of $9,080 based on April 21 price, many holders have fled — FORTH has hovered around 22,000 token holders throughout July.

The Verdict: While prices and the number of holders fell, token trading volume peaked at $1.3B in April 2021 and steadily declined to $200M in June 2022.

Following the airdrop, Ampleforth saw AMPL tokenholders increase 3% from 245,059 on April 21 to 254,850 on May 21. As of July 26, 2022, 300,916 wallets hold AMPL.

$FORTH Transactions

Gitcoin

Gitcoin is a platform that funds public goods via grants. It’s designed to enable community governance of the project and coordinate open source development.

The Drop: In the month following May 25, 2021, Gitcoin airdropped an average of 663 GTC or $4,051 based on May 26 prices to 12,521 previous donors and contributors.

The Verdict: In the month following the airdrop, Gitcoin’s daily donors rose from 24 to 202. Now sitting at 20,062 token-holders, Gitcoin has used over 2,300 ETH to fund projects like crypto policy advocate Coin Center, POAP (Proof of Attendance Protocol), and blockchain explorer DeFiLlama.

Daily Gitcoin Donations via Dune

Tornado Cash

Tornado Cash is a protocol used for anonymizing blockchain transactions. Thus far, over 3.3M ETH has been deposited by more than 37K users.

The Drop: On February 9, 2021, they began an airdrop that sent an average of 2,073 TORN or $13,836 based on February 10 price to 2,457 users in the first month. The number of TORN holders quickly rose and have hovered around 7,000 holders since October 2021.

The Verdict: As of February 9th, 2021, Tornado Cash had a TVL of $190M. Ninety days after the airdrop, TVL was up to $535M. Tornado Cash hit a high of $1.1B in TVL in October 2021. While Tornado Cash sent their airdrop to a small amount of users, it helped build them into a well-known brand in the industry.

Tornado Cash TVL via DeFiLlama

Takeaways

Despite airdrop recipients tending to dump their free tokens, the data shows they can be an effective marketing tool, especially in the cases of decentralized exchanges like Uniswap and 1inch, who were able to multiply their TVL through follow-on liquidity mining programs.

“Protocols which have proven product-market fit should consider decentralizing with help from an airdrop. If you’ve already got product-market fit, you’ve got users who WANT ownership,” Dawson Botsford, founder of airdrop hunting website Earnifi, told The Defiant. “So if we think of airdrops as a way to distribute ownership, you should only give out ownership of something valuable. Products in the ‘idea’ stage are too early.”

Indeed. Web3 companies have to calculate the customer acquisition costs for airdrops and measure them against more conventional marketing efforts, said Antonio Garcia Martinez, the founder of Ad-tech.

Perhaps, the answer is this: Rather than airdropping tokens to anyone, use them to reward and retain core users.