Airdrops are frequently utilized by new crypto projects; however, data from the past seven years indicates that up to 88% of airdropped tokens depreciate in value within three months.
A report from DappRadar analyst Sara Gherghelas on Sept. 18 revealed that since 2017, projects have issued more than $20 billion in airdrops, yet 88% of these tokens lost value shortly after, “underscoring the disparity between immediate hype and lasting viability.”
In an interview with Cointelegraph, DappRadar’s content head, Robert Hoogendoorn, emphasized that successful token distribution is crucial; projects aim to distribute their tokens to dedicated holders.
“Successful airdrops often employed phased or targeted distributions, such as those seen with Optimism, to mitigate sell-offs by the community. Nonetheless, there isn’t a universal formula; success hinges on distribution, product-market alignment, and token utility,” he stated.
“Furthermore, general market conditions significantly influence airdrop valuations. A successful airdrop is one that keeps the community engaged with the product even post-token deployment.”
The first known crypto airdrop took place in 2014, when the Auroracoin project distributed its native coin, AUR, as an alternative to Bitcoin in Iceland.
Crypto projects must carefully select holders
Since Auroracoin’s inception, Hoogendoorn noted that airdrops tend to occur more frequently during bull markets and have evolved with strategies such as on-chain engagement and social media initiatives.
However, Hoogendoorn contends that projects should delve deeper into analyzing users’ on-chain behavior, trading patterns, and even social media “reputation” to prevent instances of airdrop hunting or farming.
“A trend is emerging where airdrop distribution takes reputation into account, integrating social media engagement. Additionally, several projects have leveraged platforms that reward user engagement to distribute a portion of their airdrop budget,” he noted.
Airdrops tied to flawed projects are likely to fail
Jackson Denka, CEO of Azura, a DeFi platform supported by the Winklevoss twins, shared with Cointelegraph that many airdrop tokens decline in value because they are linked to fundamentally weak protocols that “lack genuine adoption and do not generate revenue.”
“No amount of financial engineering, incentivization, or user persuasion can alter the reality that some assets are inherently better investments than others,” he commented.
“Regardless of structural flaws, airdrops associated with solid or growing products will increase in value over time.”
Hyperliquid received acclaim for executing the best airdrop launch in November 2024 by excluding venture capitalists and rigorously promoting community engagement.
Looking ahead, Denka foresees airdrops becoming less prevalent as more initial coin offerings arise, with investors paying upfront for tokens before they hit the open market, akin to an initial public offering but utilizing crypto tokens.
“No other financial market globally distributes free equity to users. Companies like Uber, Robinhood, and Facebook never did this,” he pointed out.
“In retrospect, the surge in airdrop popularity will be viewed as a brief phenomenon in the broader crypto market history, even though they will persist.”
Liquidity challenges must also be addressed
Liquidity is another significant hurdle for airdrops. Kanny Lee, CEO of SecondSwap, a marketplace for trading locked tokens, explained to Cointelegraph that airdrops devalue because the projects behind them release too much liquidity too fast, saturating the market with tokens.
Two recent successful airdrops encouraged users through continued activity, maintaining liquidity even following initial volatility, while implementing a gradual unlock schedule to release supply in stages, according to Lee.
Related: Binance airdrops $45M in BNB to memecoin traders affected by market crash
“Both strategies emphasize the same principle: value endures longer when users remain engaged and liquidity accumulates gradually,” he added.
In the future, Lee believes that rewarding users for holding tokens will become the norm.
“Sustainable liquidity should be the ultimate aim of any airdrop strategy. It’s not about how many wallets receive tokens, but how long those tokens stay active in the market,” he asserted.
“Programs that incentivize ongoing participation or release supply in phases help mitigate the sharp corrections that often follow mass distributions.”
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