A short history of token airdrops
Airdrops have been an important part of projects on Ethereum. Let’s see how they started and how they evolved.
The first airdrops
The first airdrop in crypto history happened in March 2014 when Iceland launched its Auroracoin as an experiment that would potentially replace the Icelandic króna and Bitcoin. Each citizen first received 31.8 AUR, then 318 coins. In the third stage, the amount doubled to 636 coins. All the coins were airdropped for free.
The reasoning behind the Auroracoin airdrop and the airdrops that followed it in the next few years was to create an initial market for the token and as a way to advertise it: One day, you would discover an amount of some coin in your wallet and naturally you would look it up, check the project, the token price, where it’s traded.
These airdrops resembled the biblical archetype of manna falling from heaven: tokens dropped into your wallet out of nowhere.
However, it is important to keep in mind that sending any token required the sender to pay some gas, and as gas prices went up, and gas is denominated in $ETH whose price also went up, sending tokens to thousands of wallets became extremely costly.
This is why airdrops stopped being actual airdrops and became free claims to tokens: Eligible recipients could claim the tokens for free, but they would have to pay the transaction gas. The cost of a single transaction is usually a minuscule percentage of the value of the tokens claimed, so everyone is happy: No one will complain about paying 0.01 $ETH in gas to claim tokens worth 1 $ETH for example.
Something else changed too. For most of these early projects, the token launch was the first thing they implemented, right after they had a rough project plan. If the token gained traction and value, great, the tokens they had in their treasury would provide them with funds to implement their idea. If not, their investment was minimal at that point and they could abandon the project and move on.
However, as projects started launching their tokens at a later stage, after a lot of effort, time and capital had been invested in them, they realized that giving away part of their treasury to random users most of whom would just flip the tokens made no sense and was actually damaging the projects.
The Uniswap Airdrop
It was probably Uniswap that set a new paradigm in September 2020, when they airdropped $UNI to over 250k addresses. Eligible addresses were the ones that had interacted with the platform before September 1st 2020 and were granted at least 400 $UNI tokens ($UNI all-time high price was more than $42).
The reasoning behind the $UNI airdrop was different. Uniswap did not need advertising, by the time the airdrop took place, they had supported over $20bn volume traded. They wanted to decentralize their protocol governance and they airdropped voting power ($UNI’s only utility until this day is to vote on protocol changes and proposals) to the users who had interacted with the service.
The ENS Airdrop
About a year later, on November 2021, the Ethereum Name Service (ENS) airdropped the $ENS governance token ($ENS) when the converted from a “private” project to a DAO.
This was one of the largest airdrops ever made, and tokens valued between $250m and $500m (depending on the price which fluctuated significantly in these days) were airdropped to ~137k holders of .eth domains.
But what stood out was their slogan that best describes the reasoning behind governance tokens airdrops:
You were not airdropped free money, you were airdropped responsibility
— brantly.eth
Returning value to loyal users and early adopters
This was a smart strategy (that seems to have worked well for Uniswap) and many other projects followed their paradigm. Users started having an expectation of a future airdrop from every new project, and projects sustained this expectation by saying that their airdrops were “returning part of the value created to their loyal users”.
Returning value to users was a smart incentive, especially in DeFi, where attracting liquidity is what can make or break a project. The expectation of a future airdrop was often enough for liquidity providers and traders to move liquidity from established protocols to new ones (and take the risk that comes with using a new, sometimes immature, protocol).
Airdrop mining
Not surprisingly, this created a whole new type of user, the airdrop miners. Airdrop miners would study the protocol, try to identify how the airdrop would be calculated and create transactions that added little value to the protocol but ranked them at the top of airdrop rewards. For example, if an airdrop was expected to be based on the number of transactions a wallet did, they would pay the cost to create huge amounts of transactions by moving around the same amount again and again.
Sophisticated airdrop mechanisms
In response to airdrop mining, projects started adopting more sophisticated airdrop strategies and mechanisms.
For example, the HOP protocol announced a bounty program together with their airdrop: If you could identify an attacker by studying the on-chain transaction history, you would get 25% of the airdrop the attacker would have received. And if you identify yourself as an attacher, you would get 25% of the total amount you would have received (and avoid risking to not get anything).
The Optimism L2 created a two-tiered airdrop. In order to participate in the second tier (which took place nine months later), users also had to be active in the protocol’s governance.
The Blur NFT marketplace created a multi-tier airdrop mechanism that they used in order to take market share from OpenSea: They required users who listed their NFTs on other marketplaces to also list them on Blur at a lower or the same price and to use some protocol features like NFT collection bids. In the latest airdrop tier, they even require users to delist their NFTs from other marketplaces in order to get the maximum $BLUR airdrop!
Are $WXM beta-rewards an “airdrop”?
The WeatherXM Whitepaper describes a beta-testers reward mechanism that some station owners refer to as “the airdrop” because the term has been expanded to include so many diverse mechanisms.
No matter how you call it, in the next article of this series we will explain the details of the WeatherXM beta rewards program and the reasoning behind them and we will highlight some of the details that have not been finalized yet.
