Delphi Digital Report: Do Airdrops Help or Harm?

Airdrops stirred attention with Uniswap’s airdrop in 2020, which hit a value of $6.4 billion.

Even though we sometimes look at the downsides, we should consider their possible upsides. Let’s explore the main points from Delphi Digital’s report about airdrops.

What are Airdrops?

At first, airdrops were simple. Projects like Uniswap gave all users the same number of tokens. As time passed, people came up with better ways to do things. Take Jito, for example. They used different levels for their airdrops. Optimism set up many rules you had to follow to get in on their airdrop.

Point systems are all the rage these days. They were to distribute tokens to real users and prevent Sybil attacks. What’s a Sybil attack? It is when someone registers many fake identities to get many tokens. Here are some recent examples:

Source: X

Even with these new ideas, a big problem still exists: the bubble effect. This happens when a project sees a surge in activity before an airdrop snapshot (when a project takes user data for distribution) and then drops afterward.

Post-Airdrop Decline

LayerZero and its Stargate Finance project prove this pattern. Stargate’s bridging volume hit $1.67 billion before their airdrop. After the snapshot, it tumbled 75% to $406.7 million. zkSync also saw its daily fees sink under $10,000 for the first time following its airdrop. This pattern repeats itself; Kamino Finance, Parcl, Manta Network, and Jito Sol declined after their airdrops.

The Concept of Measuring Real Growth

One primary issue with airdrops is differentiating fake from genuine users. If users see your products as valuable, they’ll get stuck on your product and become returning clients. Now, that’s natural growth. But fake growth is typical after distributing airdrop rewards. People rush to a project and abandon it after they get their airdrop allocation; this is short-lived growth.

Source: X

To get a hold on a project’s performance, Delphi Digitals has some basic rules for you:

• You should Track the number of daily active users and monthly active users. This information lets you compare the values before and after the airdrop snapshot.
• Check the number of active users within a week or after a month of airdrop allocation.
• Compare the number of new users and returning customers.
• Track the percentage of each user’s transactions.
• Find the features they use the most and ensure you check the number of times they use it.
• Please find out how their active users engage with their wallets and the activities they get involved in.
• Check out the discussions in the communities. 

That’s how you can tell if a project or protocol is still valuable after its airdrop reward allocation.

The “Low Float, High FDV” Model

The second challenge is the ‘low float/high diluted valuation (FDV)’ token model in 2024. This strategy keeps the token circulation small while the perceived total value is significant. While this can give the impression of value in a project, it leads to new investors needing clarification and consistency in the project evaluation when the pressure of selling created by airdrops occurs.

Conclusion

Airdrops may attract new users, but the critical question is whether they stay. Airdrops are like social media giveaways; they bring people to your page, but only some become genuine followers. Investors must distinguish between temporary hype and organic growth.

Airdrops can help, but they also pose significant risks and problems. Projects must plan their airdrop tactics to encourage genuine interest and avoid fake activity spikes. So, while airdrops benefit users, it’s sometimes a different story for projects.

Disclaimer

The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment, and informational purposes only. Any information or strategies are thoughts and opinions relevant to the accepted risk tolerance levels of the writer/reviewers and their risk tolerance may be different than yours. We are not responsible for any losses you may incur due to any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments so please do your due diligence. Copyright Altcoin Buzz Pte Ltd.

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