Introduction: This is a historical overview of airdrops and freebie-collecting that every enthusiast should read. It’s also an entertaining and informative article about this culture. Understanding the history of a field allows one to better navigate its future challenges and opportunities.

Origin of Airdrop

“Receiving rewards at nearly zero cost.” “Money isn’t earned; it’s blown in by the wind.” These are the comments left by airdrop participants on social media in recent years. This style of profiting without investing, reminiscent of the early Web2 era’s strategy of burning money to subsidize users through price wars, is nothing new. However, compared to that, the direct cash “subsidy” model of Web3 is even more eye-catching. After the creation of wealth stories like ENS and DYDX airdrops, the entire Web3 community plunged into an airdrop “gold rush.”

The earliest instance of a Web3 airdrop can be traced back to a programmer named Baldur Friggjar Odinsson, who launched AuroraCoin in 2014 and airdropped 31.8 tokens to each of Iceland’s 330,000 citizens. Yet, most recognize Uniswap as the pioneer of airdrops. To counteract Sushiswap’s vampire attack, Uniswap distributed at least 400 UNI tokens to every address, each worth over $1,000 at the minimum. Witnessing the powerful impact of Uniswap’s airdrop, other major projects like 1inch and Lon quickly followed suit, catalyzing what came to be known as the DeFi Summer of 2020. As terms like Web3 and DAO gained traction, airdrops became a conventional practice for decentralized projects, even distinguishing itself as a unique culture within the blockchain community.

Interestingly, projects that distribute airdrops can be categorized into two types: “VC-backed projects” and “community projects.” This article primarily focuses on VC-backed projects.

Key Functions of Airdrops

1.Promotion and Marketing

In recent years, airdrops have become an essential tool for most projects. A successful airdrop campaign can instantly amplify a project’s influence. For enthusiasts looking for free tokens (often referred to as “airdroppers”), airdrops serve as a source of goodwill towards a project. These enthusiasts often showcase their airdrop gains on social media, triggering a “chain reaction” that further intensifies the public’s attention towards the project.

Many project teams hope to create a ripple effect through airdrop activities, aiming to attract new users and build stronger bonds with early adopters. In sectors like DeFi and NFT, airdrops are also a tactic many projects employ to capture market share, and in some cases, initiate “vampire attacks” against competitors.

(The daily transaction count on the OP chain has maintained a high level after the airdrop)

While airdrops can generate interest and attract new participants, there’s evidence suggesting that they might not significantly contribute to user loyalty. Based on a Uniswap dashboard set up by Dune user @jhackworth, only 6.2% of airdrop recipients still hold UNI tokens. Addresses that received the UNI airdrop and remain active weekly account for less than 2% of Uniswap’s weekly active addresses, with a trading volume of only about 1%.

Although the decline in these percentages might be related to the growth of non-airdrop users, the fact that active addresses receiving airdrops continue to decrease indicates that the UNI airdrop wasn’t as successful in retaining users as initially anticipated.

2.Token Distribution Decentralization

After completing their initial developments, many projects tend to partially shift governance rights and responsibilities by creating DAOs to achieve decentralization. Most POS blockchains have a stronger need for token distribution decentralization compared to DeFi projects, hence they often distribute tokens through airdrops or public offerings.

To reduce token concentration among early VCs and the project team, most projects distribute a portion of tokens to the community or early users. Community members can then help in redistributing these tokens, ensuring they reach a broader audience.

The Tug-of-war Between Airdroppers and Project Teams

1.The Witch Hunt — A Cat and Mouse Game

The Sybil Attack, first introduced by John R. Douceur from Microsoft Research Academy in 2002, is named after the 1973 sci-fi novel “Sybil.” The novel’s protagonist, Sybil Dorsett, has dissociative identity disorder with 16 distinct personalities. In the context of the internet, a Sybil Attack refers to a single entity maliciously forging many identities or accounts to gain undue power and benefits.

Sybil attacks have been present since the Web 1.0 era. In the realm of token airdrops, the blockchain’s inherent “permissionless” nature and the strong anonymity of on-chain addresses, coupled with the absence of KYC procedures, make it incredibly cost-effective for attackers to create numerous addresses with a single real-world identity to collect multiple airdrop rewards.

Project teams running airdrops typically aim for rewards to reach genuine users for mutual benefit. While in the short term, airdropping might provide impressive user metrics, it’s evident that many Sybil attackers claim their rewards, cash out, and then remain inactive, clearly diverging from the visions of most project teams.

（Aptos, which did not undergo witch-hunting reviews, saw its on-chain transaction volume briefly peak during the airdrop distribution, but then languished for a long time afterward.）

Therefore, a specific “witch-hunting operation” targeting attackers is imperative, and the ways to deal with witch attacks vary greatly:

· On-chain behavior review: This method primarily focuses on on-chain data analysis. It screens on-chain addresses through the fund connections between addresses (funds distribution or collection, transaction relatedness) and on-chain behavior similarities (interaction with smart contracts, transaction intervals, transaction times, active time periods, etc.). This is the most common review method.

Depending on the project’s tolerance, the typical allowance for associated addresses ranges from 10-20. Some project teams delegate the review power to the community, rewarding those who contribute to the witch-hunting process with the confiscated shares of witch airdrops. This encourages community members to actively report witch addresses. Prime examples in this area are Hop Protocol and Connext. However, as the saying goes, “For every measure, there is a countermeasure.” Airdrop hunters are continually upping their game, and these advanced players are often well-prepared and cautious.

(One of the reports given by the Connext community based on the results of reports on on-chain Sybil addresses.)

· Reputation Score: The reputation score typically examines a user’s activity records on different chains (such as on-chain activity, transaction volume, consumed Gas, etc.), identity verifications built on renowned applications (like ENS, Lens, etc.), participation in on-chain governance (Snapshot, Tally, etc.), and NFT collection history. By analyzing multi-dimensional metrics, it gauges the credibility of a particular on-chain address and determines whether it is controlled by a bot.

The primary purpose of this method is to identify Sybil addresses through reputation scores, substantially increasing the malicious costs for Sybil attackers (this logic is somewhat similar to Proof of Work). Gitcoin Passport, Phi, and Nomis are representative projects in the reputation scoring category. However, some reputation-based platforms have been known to play favorites, granting higher score weights to users of their own products. In a bid to attract large players, they may also set high capital requirements or even require users to upload Twitter, Google, Facebook, or other Web2 account information to verify the real-world identity of the person behind the account.

·Biometric Verification: Each individual’s biological characteristics, such as the iris, fingerprints, and facial features, are unique and unalterable, making them difficult to falsify. For projects distributing airdrops, biometric verification ensures that most of the rewards go to genuine users. However, this method of verification is inefficient. Moreover, controversies stemming from Worldcoin’s iris recognition and Sei’s facial scanning indicate that the collection of user biometric data can pose privacy concerns and legal risks in different jurisdictions.

Additionally, KYC verification that involves uploading identification from one’s country or region (e.g., driver’s license, passport, identity card), Soul-Bound Token (SBT), face-to-face verifications for issuing Poap, and Proof of Human are also prevalent methods against sybil attacks.

In truth, taking appropriate measures to weed out malicious users can ensure the fairness of reward distribution. However, overly rigorous screening might mistakenly penalize genuine users. Delegating the authority for sybil checks to the community could also harm interpersonal trust and exacerbate conflicts among members.

Regardless of the method employed to counteract sybil attacks, it’s unrealistic to completely filter out unauthorized users. When potential benefits outweigh the costs of malicious activities, sybil attacks become almost inevitable. Neither Proof of Work (PoW) nor Proof of Stake (PoS) can entirely prevent such nodes; they can only significantly curb such behaviors. This cat-and-mouse game seems endless.

2.United in Prosperity and Adversity

On the surface, there appears to be a strategic tension between project teams and users. This opposition is not only evident in the conflicts between witches and anti-witches, but sometimes project teams subtly hint at airdrops or initiate “Odyssey tasks” and other activities to “manage airdrop expectations.” Such tactics seduce users into interaction. Airdrop hunters, uncertain about the existence and specific rules of airdrops, participate at the risk of incurring costs and potentially getting nothing in return, compelling the project teams to offer airdrops and grant whitelists.

Although there is an ongoing game of strategy between project teams and airdrop hunters, beneath the surface, their relationship is symbiotic and mutually beneficial. On one hand, the actions of airdrop hunters are a significant component of the project’s on-chain activity data. They can identify various bugs in the early stages of a project, prompting improvements in the user experience. This essentially provides stress testing (both OP and ARB encountered performance issues during their airdrop distribution), generating revenue for the project teams. In the Web3 ecosystem, which heavily relies on the wealth effect, many projects can only survive lengthy bear markets by “cultivating airdrop hunters.” The vast majority of these projects also rely on airdrop hunters to contribute data that boosts their valuation or facilitates their listing on centralized exchanges (CEX).

On the other hand, airdrop hunters may receive token airdrops in the future, allowing both parties to co-create an “illusion of prosperity.”

Changes in Airdrop Policies

1.The History of Airdrop Initiators Spiraling Inward

The story of the inward spiral of airdrop initiators can begin with Uniswap. In the DeFi race, where liquidity is king, DeFi projects led by Sushi captured a significant user share and locked-in funds (peaking at $1.2 billion) from Uniswap during the DeFi Summer of 2020, primarily through liquidity mining incentives. Given these circumstances, Uniswap, feeling the pressure, unprecedentedly issued a large number of UNI airdrops to users. They initiated a liquidity mining program to attract users back and reclaim the leading position in the DEX realm, a position they’ve maintained ever since.

(In 2020, Sushi launched a “vampire attack”, capturing a market share from Uniswap)

Today, airdrops have become one of the standard tools to compete for users within the same track and to initiate “vampire attacks” against competitors. To retain users, project teams have come up with various ingenious strategies. In the fiercely competitive Layer 2 track, OP had launched multiple rounds of airdrops to put pressure on its competitors. However, in the past two years, airdrop-related “vampire attacks” have become even more prominent in the NFT space. Before the emergence of Blur, which maximized NFT liquidity, multiple NFT trading platforms like LooksRare and X2Y2 tried to attract users via airdrops. However, these products lacked distinctive advantages, and as the expected returns dwindled over time, users naturally lost interest. This resulted in a significant drop in platform trading volumes and activity. Meanwhile, OpenSea’s dominant position remained largely unchallenged.

(Blur is Gradually Eroding OpenSea’s Market Share Advantage)

This serves as a valuable lesson for future projects: the utility and essential demands of a project remain key to retaining users. An excellent product is a project’s main defense, while airdrops simply add a decorative touch.

To this day, the updated V4 version of Uniswap remains the benchmark for DEXs. Blur has addressed the liquidity issue of NFTs during bear markets. Optimism, as a leading Layer2 solution, provides Ethereum users with a solid underlying infrastructure. Though airdrops brought a temporary surge in interest, projects lacking utility and real demand ultimately faded into the annals of history.

2.The Evolution of Airdrop Enthusiasts

The landscape of airdrops has evolved dramatically in just a few years. From merely providing an email address and joining a project’s community to needing deeper involvement to receive rewards, the dynamics have changed. With a backdrop of good projects being few and an abundance of users (endless addresses), the power dynamics have shifted from users to project developers. Developers have been manipulating user expectations around airdrops, and through platforms like Galxe, Layer3, Rabbithole, have initiated “Odyssey” events to engage users. This has shifted the narrative from “seeking users” to “users seeking airdrops”, leading to the emergence of specific strategies and “street wisdom” within the airdrop enthusiast community.

3.Direction Matters More Than Effort

Many airdrop enthusiasts closely follow projects invested in by renowned investment firms like A16Z, Paradigm, and Coinbase. They trust these institutions’ judgment and anticipate a higher future valuation for the tokens, along with a higher likelihood of receiving an airdrop. According to a summary by airdrop blogger @ardizor, among well-known investment institutions, Binance, Paradigm, and Multicoin have the highest airdrop probabilities, at 15.4%, 11.6%, and 7.2% respectively.

(Note: Airdrop rates of projects invested in by prominent VCs. Source: @ardizor)

For projects backed by famous VCs, airdrop enthusiasts tend to favor those with higher funding amounts. More substantial funding implies better cash flow and brighter prospects, making their airdrops more generous. When projects have the backing of renowned VCs and significant funding, the odds of receiving an airdrop increase. Airdrop enthusiasts naturally flock to yet-to-be-released token projects with significant financing, like zkSync, Starknet, Aleo, Aztec, and LayerZero. Presently, zkSync (with approximately 4 million active addresses), Starknet (around 2 million active addresses), and LayerZero (about 3 million active addresses) are hotspots for these enthusiasts.

(After the Arbitrum airdrop was distributed, three projects that raised over 100 million USD, Layerzero and Starknet, saw a significant increase in their address counts and daily activity. Following its mainnet launch in March, ZkSyncEra has been growing at a rate of at least 5,000 new active addresses daily.)

4. The Harder You Work, The Luckier You Get

Excluding non-fixed quota airdrops like Worldcoin, the airdrop by Arbitrum in February of this year had the largest snapshot size to date, with a staggering near 2.3 million addresses. As more airdrop enthusiasts join and with fixed airdrop quotas, project developers have become selective about their recipients. Rather than intensifying scrutiny and earning a bad reputation in the community, it’s better to raise the bar for eligibility and reward quality users. This approach has now become the standard for projects when executing airdrops.

Quantitative and venture capital firm W3.Hitchhiker’s Tiga has identified the general distribution pattern of airdrops by project teams:

Initial Reward: Approximately 50% of the tokens are allocated to users ranked between 0% and 80%.

Intermediate Reward: Approximately 10% of the tokens are allocated to users ranked between 80% and 90%.

Top Reward: The top 10% of users receive approximately 40% of the total token allocation.

(Airdrops also follow the 82 rule. Image source: Tiga, W3.Hitchhiker)

Such a tiered airdrop approach better categorizes users. It distributes the majority of token shares to users who meet the basic criteria, satisfying the desires of those seeking “freebies,” while also catering to major stakeholders who contribute significantly to the project. This approach rewards deeply engaged participants to the fullest, ensuring all parties gain good standing within their respective communities.

The current prevalent method for these tiered airdrops is the “airdrop points system,” which generally divides into explicit and implicit scoring.

·Explicit Scoring System: Represented by projects like Mintfun, Blur, and Arkham, where airdrops are transparent but their value is uncertain (though some can be estimated). Essentially, it uses airdrops as a lure for transaction mining or interactive mining. This system can be seen as a tacitly approved “sybil attack” by the project team, using anticipated airdrops to retain user loyalty.

·Implicit Scoring System: Projects like Connext and Arbitrum exemplify this. Users are unaware of potential airdrops before interacting with the project. The implicit system often includes points for less popular participation or multipliers for specific interactive behaviors, while penalizing behaviors that seem automated.

As tiered airdrops become more common, the gap between the smallest and largest allocations can sometimes exceed tenfold. To secure the largest portion, users must not only choose the right projects but also invest additional effort. This has led to the concept of seeking “premium addresses” within the airdrop community. Such addresses usually show patterns of genuine user interactions across various projects and multiple blockchains. These opportunists predict airdrop conditions based on their research on the project, meeting interaction timings and monetary contributions just enough to appear as deeply involved users.

However, whether it’s raising the bar to secure rewards or implementing stricter sybil attack checks, these measures ultimately diminish the potential gains genuine users stand to make.

(Note: “The harder you work, the luckier you get: Arbitrum increases the reward gap between casual participants and major ecosystem contributors.”)

Has the airdrop field become saturated?

Airdrops have caught the attention of Web3 users from economically modest third-world countries. Driven by the purchasing power of the US dollar, high returns with low cost, and the benefits of multiple addresses yielding multiple profits, most airdrop studios originate in these less developed nations. After experiencing numerous substantial airdrops, these “freebie” studios not only have improved cash flows to expand interaction scales but are also gradually professionalizing. Techniques such as random interaction scripts, distributed and independent IP addresses, and strict avoidance of wallet associations to counter anti-sybil measures are common.

(Based on Google Trends, airdrop keyword searches are concentrated in developing countries with low to middle income.)

While some studios have gone bankrupt due to cash flow and airdrop cycle issues, most established studios transfer risks by employing others to participate in airdrops or selling tools, maintaining addresses with thousands of interactions. The vast number of addresses puts pressure on the project teams. To combat the overwhelming number of opportunists, some projects, like the Lens Protocol, set entry barriers, while most choose to raise the airdrop threshold. This has led to a situation in the airdrop field of “active sybils, inactive genuine users.”

Furthermore, after the Arbitrum airdrop, as multiple addresses per user became commonplace, an industry is emerging around airdrops. This includes KOLs who write airdrop tutorials, providers offering identity verification for sybil attackers, suppliers of IP isolation and automated script tools, anti-sybil agencies, and even hackers targeting these opportunists. This evolution reflects the maturing state of the airdrop field.

(The diminishing returns of airdrops. Image source: @0xNingNing)

In summary, in its early stages, the airdrop field was a good “bet” for risk-averse users seeking high returns. As airdrops become more competitive, a decrease in expected returns is inevitable. If users view airdrops, which sacrifice liquidity and offer uncertain return periods, as investments, then considering the risks of countermeasures, sybils, and diminishing profits, the final returns may be less than investing in spot commodities during bear markets. The history of airdrops mirrors the broader shifts in the cryptocurrency primary market.

In cryptocurrency history, platforms like Coinlist, which launched coins with hundredfold returns, and GamefiXTOEarn’s gold-mining models cooled down as more opportunists joined. But any discerning observer knows high-return models don’t last long, and these opportunists merely hasten the life cycle.

Disclaimer：

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