Airdrops are a common practice among new crypto projects, but as much as 88% of airdropped tokens lose value within three months, according to data collected over the last seven years.
A Sept. 18 report by DappRadar analyst Sara Gherghelas found that since 2017, projects have distributed over $20 billion in airdrops, but 88% of the airdropped tokens lost value within months, “highlighting the gap between short-term hype and long-term sustainability.”
Speaking to Cointelegraph, DappRadar’s head of content, Robert Hoogendoorn, said token distribution is key to success in an airdrop; projects want to place their token in the hands of diamond holders.
“Some of the more successful airdrops used phased distribution, for example, Optimism, or very targeted distribution, as ways to limit the sell-off by the community. However, there’s not one success recipe, and it all comes down to distribution, product-market fit, and token utility,” he said.
“Moreover, general market trends have a high impact on airdrop valuations as well. A successful airdrop is one that manages to keep the community interested in the product, even after deploying the token.”
The first recorded crypto airdrop occurred in 2014, when the Auroracoin project airdropped its native coin, AUR, as an Icelandic alternative to Bitcoin.
Crypto projects need to hand-pick holders
In the decade since Auroracoin’s launch, Hoogendoorn said airdrops are more common during a bull market, and have been evolving with measures like onchain engagement, social media campaigns and liquidity provision.
However, Hoogendoorn argues that projects need to take more care in analyzing a user’s onchain activity, trading behavior and even social media “reputation” to avoid instances of airdrop hunting and farming.
“We’re already seeing a trend where airdrop distribution taps into reputation, for example, by integrating social media activity. Furthermore, various projects have used engagement and reward platforms to distribute at least a share of their airdrop allocation,” he said.
Airdrops from bad projects are doomed to fail
Jackson Denka, CEO of Azura, a DeFi platform backed by the Winklevoss twins, told Cointelegraph that many tokens from airdrops lose value because they are attached to protocols that are fundamentally unsound, “do not have real adoption, and do not generate revenue.”
“No amount of financial engineering, incentivization, or bribing users can change the fact that some assets are better to invest in than others,” he said.
“Airdrops, no matter how flawed their structure, if associated with a good/growing product will go up in price on a long enough time horizon.”
Hyperliquid was lauded as delivering the best airdrop launch ever in November 2024 by excluding venture capitalists and rigorously encouraging community involvement.
In the long run, Denka expects airdrops to take a backseat, as more initial coin offerings emerge and investors pay to acquire tokens before they’re released on the open market, effectively serving as an initial public offering but utilizing crypto tokens.
“No other financial market in the world gives away free equity to their users. Uber didn’t do this, Robinhood didn’t do this, and Facebook didn’t do this,” he said.
“We’ll look back on the popularity of airdrops as a temporary blip in the broader history of crypto markets, though they’ll always exist.”
Liquidity needs to be addressed, too
Another key problem facing airdrops is liquidity. Kanny Lee, the CEO of SecondSwap, a marketplace for trading locked tokens, told Cointelegraph that airdrops lose value because the projects behind them release too much liquidity too quickly, flooding the market with tokens.
Two recent successful examples of airdrops rewarded users for ongoing activity, which helped maintain liquidity even after the initial volatility, and utilized a gradual unlock schedule so that supply entered the market in stages, according to Lee.
Related: Binance airdrops $45M in BNB to memecoin traders hit by market crash
“Both approaches point to the same principle: value lasts longer when users stay engaged and liquidity builds progressively,” he added.
In the future, Lee believes that trends around rewarding users for holding tokens will become a standard practice.
“Sustainable liquidity should be the main goal of any airdrop design. It is not about how many wallets receive tokens, but how long those tokens stay active in the market,” he said.
“Programs that reward continued participation or release supply in stages help prevent the sharp corrections that follow mass distributions.”
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