Did airdrops ruin cryptocurrencies?

Did airdrops harm crypto?

The enthusiasm of the cryptocurrency community for airdrops is self-evident – some DeFi protocols will give thousands of dollars worth of tokens to old users for free as a thank you for early adoption. There are countless examples of airdrops being used as a way to distribute tokens for new projects.

Although airdrops are very attractive to users, like Facebook giving stocks to early users, there are also negative practices surrounding airdrops in the community. This article will discuss airdrops and evaluate their role in the blockchain industry.

For crypto beginners, an airdrop refers to a project or protocol offering tokens or shares to early users of their product. Although the idea originated from cryptocurrencies, it really took off because of Uniswap, a decentralized exchange, in 2020. The Uniswap team announced that any user who provided liquidity or traded on the platform before the launch of the V2 protocol would receive over 400 UNI tokens, which were worth around $400 at the lowest point and nearly $20,000 at the highest point. The opportunity to earn such high returns just by trading made the community eager for airdrops.

Since 2020, airdrops have become a common means for protocols to release their tokens. Some of the most famous ones include Optimism, Arbitrum, Osmosis, Ethereum Name Service, and Blur. There are several reasons why protocols conduct airdrops. Firstly, it is an effective way to reward early users and helps boost the protocol’s trading volume, liquidity, and excitement. It makes users feel a sense of ownership in the project, and their usage of the project is directly related to how much airdrop they can receive.

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In addition, airdrops are a good method to distribute token ownership and create a truly decentralized community. This is crucial for the long-term healthy development of a protocol and helps counter the legal argument that tokens are securities. Securities mean that the US government will regulate them and adhere to strict rules and guidelines.

Finally, it can be seen as a more direct form of marketing where protocols don’t spend money on advertising but instead provide funds directly to users in exchange for their time and liquidity. All of this is possible because blockchain can relatively easily distribute value among different user groups.

Unfortunately, with the growing size of the capital pool, this fair incentive system has become easier to manipulate.

Almost every major project is expected to conduct airdrops; if they don’t, they will be considered greedy and won’t attract much early interest. This has led to some projects occasionally hinting at the possibility of airdrops, which dilutes their user pool as these people only use the product to qualify for the eventual airdrop. Similarly, some users have started playing with these airdrops by creating hundreds of wallets and making as many trades as possible to earn thousands or even tens of thousands of dollars. Although some projects have implemented mechanisms to prevent this behavior, it is far from perfect. What is even more disappointing is that many projects rely on the hype brought by potential airdrops and tacitly allow bots to join their protocol, as this increases their user count, helps them raise more funds, and eventually issue tokens at a higher valuation.

The most popular airdrops in the community currently include ZkSync, LayerZero, and StarkNet. Decentralized social media projects are filled with bot-generated spam posts, and cross-chain bridges like LayerZero have thousands of junk transactions that are worth less than the cost of fees, just to increase transaction volume in hopes of receiving airdrops. After all, there are billions of dollars up for grabs, and anyone who knows how to manipulate the system can become a recipient. The following image shows the transaction history of a bridge built using LayerZero; it is evident that these transactions serve no purpose other than for airdrops.

Although airdrops are a good idea in theory, the reality of self-interest has undermined this incentive system to the point where some projects have no purpose other than issuing tokens. Fortunately, not all hope is lost: strengthening individual detection, rather than wallet-based airdrops, can reduce some of the robot attacks that occur. It remains to be seen whether this situation will exacerbate, as allowing bots to participate aligns with the maximum interests of the protocol. Hopefully, future airdrops will combat fraudulent behavior and help build a stronger, more passionate, and decentralized community.

Author: LianGuaiBitpushNews Lincoln Murr

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