June 2, 2022: Y Token? 🪂🛩️
$VELO and $OP airdrops arrive, plus general reflections on airdrops
Here comes the much anticipated $VELO token! In their new airdrop, veCRV and vlCVX holders are eligible for up to 3500 $VELO / wallet.
For those keeping track, Velodrome is rebuilding Solidly on Optimism. In late March, the Solidly Wars were all the rage before Andre abruptly flipped.
Solidly aimed to incentivize trading fees as opposed to liquidity by only allowing voters to receive fees on pools for which they vote. In Solidity’s brief lifespan, they were able to ignite a “Solidity Wars” mechanic that captured user attention. We’ll bet Velodrome will similarly replicate the mechanic and successfully spark their own “Velo Wars.”
Trigger warning! I’ve rightclick-copy-pastaed a thread here that covers the Velodrome mechanics in greater detail:
The thread highlights some tweaks Velodrome made to the Solidly formula to try to patch over some of the problems the defunct protocol faced. In particular, Velodrome is looking at a longer emissions schedule, more stringent whitelist requirements for tokens, and adjusting the bribe mechanics.
Their blog contains far more detail on the design on Velodrome. We’re excited to see builders continue shipping into the bear market, and we’ll certainly be keeping an eye on the protocol’s evolution over the next several weeks.
On Airdrops
In a crummy market, with little to look forward to but Hayes drops, it’s undeniable that the airdrop of both $VELO and $OP has been extraordinarily successful at capturing degen mindshare.
Some mechanics of the $OP airdrop got mercilessly lampooned, proving yet again beggars can in fact be choosers. I’d bet if the numbers were easy to pull, begging and choosing would be closely correlated. It raises (but does not beg) the question… is there such a thing as a good airdrop?
What exactly is a good airdrop anyway? Judging from the fact that most tokens anecdotally appear to decline in value about 90% from their initial airdrop price, it seems fair to say that most airdrops are simply giving away free money to mindless hordes who will never use your product.
We brainstormed all the possible reasons we could think of for a protocol to offer an airdrop, here’s what we came up with (feel free to drop other thoughts in comments):
Marketing: build hype and attention to attract new users
Governance/Decentralization: establish a diverse DAO
Usage/Access: like drug dealers, offer the first hit for free (distinguished from marketing in that a token is in some way required to access the protocol)
Loyalty: One-time reward to early users
Recovery: Part of a recovery plan from a near fatal event
Retroactive Tokenomics: If a protocol is making too much money, it may adjust its tokenomics to stream some to users, and could theoretically do a lump sum to cover a historical period
For most items in this list, we can imagine how they could be directly tied to a metric that determines whether or not the airdrop was a “success.” With, say, marketing, you can define your airdrop as successful if new people start using it. Even if 99% of people just dump the token and trash you on Twitter, a 1% hit rate would still be real users, and therefore I’d judge the airdrop a success even if users flayed it.
We set out to read through the launch announcement of as many prior airdrops as we could find to try to classify their motives. Surprisingly, we found very few articles had properly covered this subject. We couldn’t collect a comprehensive history of the more notable airdrops because there’s so many skems. We’re nonetheless happy to present our research as a starting point for anybody who wants to borrow it to author the definitive guide to token airdrops.
Here are some notable airdrops we found focused on the Ethereum/ERC20 ecosystem. We tried to categorize the reason cited by the protocol for performing the airdrop. Of course, this is all a bit subjective. We surely missed some of the notable airdrops, especially from before we started watching the space actively. Also no doubt this displays a large survivorship bias, as well as bias towards protocols that tried to get veCRV/vlCVX user attention.
9/16/20 Uniswap (loyalty)
1/20/2021 StakeDAO (governance?)
2/21/2021 Pangolin (governance)
3/10/21 Convex (usage)
3/24/21 Ellipsis (marketing)
4/22/21 Badger (usage/loyalty)
5/3/21 Froyo (marketing?)
7/26/21 dY/dX (loyalty)
11/2/21 ENS Domains (decentralization/loyalty)
12/1/21 Sommelier (loyalty)
January 2021 Solidly
3/23/22 Lendflare (marketing?)
4/26/22 Optimism (loyalty/marketing)
5/26/22 Terra (recovery)
6/1/22 Velodrome (marketing)
As commenters point out more, I’ll keep updating this list.
Eyeballing this list, I’d mostly judge that the stated reason for an airdrop seems to be new protocols trying to get attention through marketing, and existing protocols trying to reward existing users for loyalty. Further, we imagine all protocols are keenly interested in the marketing angle even if they don’t say so explicitly.
So we’re in a situation where the most common airdrops appear to be the sort I’d find to be the most flimsy.
For the sake of marketing focused airdrops, perhaps it’s my “Curve doesn’t pay for marketing” bias showing, but marketing seems like a bit of a silly reason to do an airdrop. A one-off event that may drop your token’s value by 95% just to maybe please some fickle influencers who wouldn’t touch your token otherwise? Perhaps brand new projects have nothing to lose and need to shoot their shot. Yet your token might only get one airdrop, it feels like you’d want to focus on product market-fit first, rather than short-lived, ephemeral buzz for an unproven project.
The “loyalty” motivation is the most confusing. If users are already addicted to your product, do you really need to pay them? I admit I haven’t visited my crack dealer in some time, but do crack dealers often use a punchcard system that gets you the tenth rock free? I suppose you could measure if churn rate dropped after an airdrop as a gauge of whether loyalty increased, but churn rate is a notoriously fickle metric.
Perhaps loyalty-based airdrops have just become so ingrained as a social custom, it’s now become a faux pas to ignore it? I’m not socially tactful enough to pick up on these cues.
If this particular beggar may be so choosy, I’d be interested in seeing future protocol airdrops take a more strategic view towards their airdrops. I’d argue that the “loyalty” and “marketing” benefits are largely baked in to any airdrop anyway. The other dimensions are more ripe for optimization.
The less utilized categories of airdrops thus seem the most tactical. Of these, the final bullet point of “retroactive tokenomics” seems most interesting, although I confess I couldn’t find an airdrop that accomplished what I’m imagining. Arguably it could resemble a subset of the “loyalty” category, but tying this explicitly to apply some degree of continuity and kickstart a new tokenomics structure feels substantive and more forward-looking.
Specifically I’m imagining a protocol that wished to start disbursing future trading fees to users. They could direct a significant portion of their treasury by applying this disbursement retroactively as an airdrop. If the new tokenomics also incentivized users to lock up such rewards, it would feel like a natural transition that promoted this new tokenomics, as opposed to a purely retroactive “thanks for playing” loyalty reward airdrop. Here I’m just spitballing though.
Generally, I’m most interested if an airdrop is in some way tied to robust tokenomics overall. With so many diverse ideas in DeFi, it’s tough to brainstorm exact specifics here. I’d want to keep an eye out for tokens that had strong incentives tied to governance and economic value of the token, so the airdrop would tie closely to future performance. As we saw with some of the defunct projects, an airdrop can’t fix bad tokenomics and bad projects.
To close out this section, we’ll drop a few idle disconnected questions you might ask about airdrops. Ambitious users could potentially weave these into a rubric for evaluating future airdrops:
Utility: Does the token have robust tokenomics and sufficient utility such that users may plausibly hold instead of dump?
Targeting: Are recipients narrowly targeted to actual users, or widely targeted for marketing impact?
Timeframe: An instant airdrop means you get one bullet to fire — airdrops phased in longer release windows can sustain benefits well into the future
Long Tail: An airdrop of $0.01 is not worth the gas to claim, and might just be insulting — did the airdrop take this into account?
Dump
Most design of airdrops lately seems to be focused on trying to game it so users won’t dump the token.
We’ve seen a number of projects try to game their airdrop in interesting ways to nudge user behavior towards staking. Ellipsis had a claiming penalty along with an aggressive vesting schedule, but $EPS price would collapse to pennies regardless. LendFlare gradually released the airdrop over the course of a year to discourage dumping, but $LFT also got hammered hard.
A robust tokenomics will always be the best defense against dumping, but even appears insufficient. Among the most bespoke tokenomics of all time is Convex. Indeed, $CVX pumped out of the gate, hitting $20. Then vampire farmers took over and drove the price to low single digits.
Fortunately for Convex, they thought to taper off emissions very quickly, so the vampire effect was short lived. Still, even their tokenomics were not immune to the gravity of airdrops.
Moving away from protocols game theory, what should you as a user do with airdrops? In almost every case, the answer appears to be sell as quickly as possible. I zoomed into a few month window for most of the aforementioned projects, and nearly all of them plummeted in price after a few months.
Even if you have high conviction in the project, it would still seem to be worthwhile to sell at least 50%. It’s tough to imagine the design so perfect that nobody has an urge to dump it. It feels nearly certain that early volatility is likely to get you a better price at which you can buy back. Looking forward to any counterexample where an airdrop only goes up and to the right, but I’ve not yet found one.
So that’s that — if I as a turbobull am I’m advising to instadump airdrops, it seems effectively guaranteed that airdrops are likely to be a rough tool for protocols to use going forward. Looking forward to the innovations that prove me wrong!
Big milestone! Thanks all, particularly the haters, for pushing this over the edge.
Disclaimers! Despite the sell rating, author has ignored more airdrops than sold. Of tokens mentioned, has exposure to $EPS, $CVX, $ENS
the velo token claim lasted only 3 days, consider it a new method to prevent ppl dumping, as I believe the majority claim is left out