How to design a satisfying airdrop

Author: KERMAN KOHLI, Translator: Lucy, BlockBeats

Editor's Note: KERMAN KOHLI shares his insights on the success and failure of airdrops, from team attitude, user expectations, token distribution, national applicability to handling Sybil attacks and other key links, and analyzes in detail the possible problems and coping strategies in each link. In particular, through the analysis of the EigenLayer airdrop case, it reveals important details that are easy to overlook in the design and execution of airdrops. BlockBeats translated the original text as follows:

By this time, I have probably studied more airdrop cases than most people in this field. As a result, I have begun to form some general observations about what kind of airdrops are good and what kind of airdrops are bad. EigenLayer is a typical example of a recent high-profile unsuccessful airdrop, and I think we can all learn some lessons from it, but there are countless other examples that we can continue to list.

Intentions vs. Expectations

Looking at this in a nutshell, I think first and foremost the attitude of the team is critical to assessing how to successfully conduct an airdrop. If there are any underlying motivations for greed, they will be very obvious. So, as cliché as it may sound, keep your cool. Your users are not fools, the wider crypto community is not fools, and investors are not fools. Every action you make will be analyzed and will be tested to see if your intentions are positive or negative. I wrote this because I have a feeling that the team thinks we are in 2021 and they can run a fraudulent strategy and no one will know what you are doing. The market is much smarter and we have seen most frauds and various forms of Ponzi schemes.

You should go into an airdrop with the mindset that crypto tokens are a novel and unprecedented way to drive value growth that benefits everyone. If you can stick to that mindset as much as possible, your actions should be guided on a fairly healthy track.

The disconnect between reality and expectations is probably what causes the ire in these airdrops. The less a team says, the greater the risk of disconnect between them and their users and community, with some common examples of teams not meeting expectations and them leading to bad outcomes.

Airdrop Amount

This is the first thing that should be made clear to people: how much of the token supply is actually allocated to the airdrop. By not disclosing this upfront, you run the risk of people wondering how much you really value their contribution. In EigenLayer’s case, they hyped up the airdrop to the sky, only to reveal a paltry 5% of the supply going to the earliest backers. While they’ve gotten away with it by accumulating $15 billion in TVL, they’ve violated the trust of their users and left themselves exposed to competition. The decline in TVL will be an interesting metric that I’ll be watching closely. If you’re unsure what the right amount is, discussing it with as many stakeholders as possible will give you a good guide. I don’t think 5% is the wrong number, it’s just that expectations outstrip reality.

Country Eligibility

What countries people are eligible for the airdrop from and what countries are not eligible. This was probably the biggest mistake EigenLayer made, they wanted to attract TVL from people across the globe, but didn’t want to take on the legal risks associated with those countries. This was a classic case of wanting the best of both worlds, but in an unfair way. Either they had to draw the line and be upfront with US and Asian users that they were not eligible, or accept the legal risk that came with that. Many teams are so afraid of legal risk in crypto that they undermine their chances of success. Whatever you do, if you are even moderately successful, you will eventually have to fight Gary.

Token Distribution

This section deals with the minutiae of how the tokens are actually distributed, and this is a metric that is exponentially more challenging. Common dilemmas at this stage are:

Whales shouldn’t get all the tokens just because they invested a lot of capital

The smallest users should get some base amount of tokens no matter what

However, these two goals are in direct conflict. If you decide to give something to small users no matter what, there is now a strong incentive to split your wallet to reach the minimum eligibility criteria to get the airdrop. This will work against whales (your largest customers) because you are encouraging them to split their wallets as well. I have a theory about how to solve this problem, but that will be discussed at another time. Currently, it seems that the best approach for the industry standard is to:

Implement a tiered system

For "big" users, allocate a slightly less linear amount (more liquidity, more tokens);

For "medium" users, allocate a linear amount;

For "small" users, allocate a fixed amount;

Use some rough criteria to enforce this tiered system

While this leaves a lot of room for improvement, it is the best that teams can do at the moment. While there is no right way to do this, the worst way is to be opaque about the structure and how it is determined.

Sybil Handling

The problem with having a tiered and not completely linear token distribution scheme is how do you distinguish between a small user and a Sybil? Many projects have a hard time distinguishing between them. Every team seems to be handling this problem differently. Some of these ways include, but are not limited to:

Build a "self-reporting" program, something like LayerZero or Hop, where users inform on each other, or projects get help from the community

Use on-chain clustering (only for large-scale industrial farms laundering money from Binance)

Choose a reputation-based attribute, most Sybils are ineligible

These options are ranked from easy to hard. Unfortunately, all of these issues are really just data segmentation issues, and not just ordinary data, but big data. I'll go into this more later.

Claim vs Direct to Wallet

This is another option that affects your airdrop. To clarify, the claim model is where users have to claim the airdrop themselves, while direct to wallet is where the airdrop magically ends up with you. The latter is a big convenience, but it can also lead to more instant sell-offs from users, as people who don't know they are eligible, or aren't even paying close attention, sell to get the funds. This argument can also be turned around, where it's harder for non-token holders to generate awareness.

A comprehensive solution to this dilemma would be to split the airdrop into two ways: claim and direct to wallet, but I haven’t seen that happen yet, this is just an idea.

Unlock Date/Unlock Schedule

If I had to pick one thing that is most important, it would be the price of the token and subsequent valuation. One thing teams should be mindful of is the terms under which other holders receive liquidity and whether the locked tokens can be staked. The more favorable the terms are to insiders, the more the airdrop will be seen as a liquidity event and encourage others to take a short-term approach. There were a lot of tricks that teams could pull a few years ago, but the market has since become smarter. If you need to restructure things with investors, do it. Bad airdrops are never worth it.

Conclusion

In conclusion, this is the end of this post. My goal in writing this post was to synthesize the many different approaches I’ve seen in the market and collate material for others who might be considering airdropping. One thing that applies in all cases is that the tools for executing a good airdrop are severely lacking, and this is something I’m very much looking forward to sharing as our data stack at 0xArc enables us to perform high-quality, large-scale analysis of millions of wallets across many chains. Until then, I will continue to reveal some small hints on how I think this problem will be best solved.