Airdrops are screwing up the cryptocurrency market

via medium

There is no such thing as free “money”

Why would anyone airdrop tokens?

Airdrops in the ICO niche market, is referred to the practice of sending a certain amount of digital assets to prospective users and investors for free.

It first started off with the disbursement of tokens into random Ethereum addresses. In theory, wallet owners would notice the free airdrops on their accounts, effectively creating awareness towards a new digital asset in the cryptocurrency eco-system.

However, this technique has not been delivering any tangible value for projects seeking funds in cryptocurrency, as it is difficult to assess the impact.

Today, the “new-gen” airdrops have become better structured and part of a more comprehensive investor acquisition strategy.

As such, token sale marketers expect contact details, especially e-mail addresses in exchange for airdrops.

Overall, airdrops can provide four theoretical value propositions:

  • Lead generation: gathering contact information is key to any marketing exercise, especially if prospects are “crypto-litterate”.
  • Viral marketing: most ICOs promote airdrops as “free money” — it will obviously convince many people to sign up to the sale and start referring their circle.
  • Trigger FOMO: as airdrops often occur only a few weeks before a sale launches, ICOs would typically offer handsome discounts, to convince investors that missed the airdrop.
  • Reward loyalty: airdrops could be an effective strategy to retain recurring users — unfortunately most of product that fundraised via ICOs do not have … users.

1. Airdrop is not free money

Do you really think that somewhere, someone is giving money for free?

To be labelled as “money”, an instrument must hold the following three functions:

  • Medium of exchange, because very few would accept upcoming tokens as a form of payment or a transfer of value
  • Unit of account, because you cannot evaluate the price of a product or a service in a token.
  • Store of value, because upcoming digital assets are priced against mainstream cryptocurrencies, which witness dramatic volatility compared to fiat currencies.

Turns out airdrops do not hold any of them. It is nothing more than giving out for free, a digital token that has no present value, but might have value in the future.

Such tokens have by no means any intrinsic value, an can only be correlated with the project, product and team backing it. Therefore, airdrops for pre-product market fit projects have no value at all.

2. $xxx worth of tokens airdropped or $0 worth of tokens?

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Picture this:

  1. A baker figures out a revolutionary recipe for cookies and decides to bake 100 cookies for its first batch.
  2. Then, the baker decides to keep 50 for his/her family, and plans to sell 49 of them in six months, when his business is set up. The last cookie will be a sample for to market his upcoming brand.
  3. The baker gives away samples of the last cookie to 1,000 potential buyers in the street. The cookie becomes 1,000 crumbs of a single cookie.
  4. During the tasting event, the baker announces that he/she plans to sell the last 49 cookies for one million dollars each.

Here you go! The 1,000 crumbs have a price tag of $1,000 each.

Now can the baker announce in his marketing campaign, that he/she has been giving away $1,000,000 worth of cookie?

Sure, but it makes absolute no sense at all.

Same with airdrops.

There aren’t worth anything because the issuer decides the price tag unilaterally and without any market feedback.

3. Airdrops are for opportunists

As most of today’s ICOs are introducing airdrops in their token distribution and promotion campaign, it is natural for any lambda airdropper to start staking up multiple tokens.

Who wouldn’t when a gazillion ICO announce that $x million of dollars are disbursed for free?

What happens when every airdropper starts accumulating every possible airdrop? Are they not incentivise to mass stacking?

ICOs do not gain any value from airdrops anymore, as it removes the sole purpose of this marketing stung. As such, airdrops only targets airdrop opportunists, that aren’t loyal to anyone.

Additionally it repels genuine prospects that missed out on an airdrop:

Why did they get free tokens but I have to pay?

4. Giving away your identity… for nothing?

As explained, ICO request email addresses before giving away any airdrop. The practice is not a problem intrinsically, but in the event a less crypto-savvy individual forgets to create a new public address for each transaction, it can create severe security vulnerabilities.

Additionally email addresses are often sold to third parties, and in the crypto-space it’s worth a lot. From ICO seeking investors to malicious agents looking for hacking opportunities.

Think about it, the moment you share an email address in exchange for an airdrop, it becomes obvious that the account holder is an investor holding digital assets.

5. It’s the perfect tool for shitcoiners and scammers

Airdropping tokens has a proven record of building a crypto-community in a matter of weeks. But how?

A community that earns free tokens without any current value, but expected future value is incentivised to promote the token. As such, airdroppers want their digital assets to have a price tag in future and will therefore promote the token sale and hope for its success.

There’s no issue about this phenomenon in the event the ICO is serious and professional.

However, in the event of a fraudulent project, airdrops can help scammers create a community of naive airdroppers that would promote their scam — without realising what they are doing.

6. How should ICO leverage airdrops?

At the end of the day blockchain startups and conventional startups share a common goal: build product for their users.

Once you have users, yes, airdrops are a great tool to reward your users for their loyalty and engage with them. Other than that, there are minimal sensible use cases to build a community just out of airdrops.

Airdroppers are incentivised to stack as many free tokens as they have, removing any brand or product loyalty in the process. Additionally, scammers and shitcoiners leverage airdrops to build a naive community of airdroppers incentivised to promote a fraudulent ICO.

Sure, airdrops will help you promote your ICO, but mark our words:

Blind airdrops disbursed by product-less ICOs are not sustainable, non-sensical and will fade away, sooner or later.

3 Likes

there’s nothing wrong with air drops. The market will filter out the non sense. Thats the whole point of a permissionless economy. We get to decide who survives and who dies at market. Good article though.

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