Building communities or solving building problems with airdrops

Recent research has shown that token-distribution exchanges that use airdrops to distribute tokens experience a significant increase in transactions and user numbers. Is this just crypto’s way of printing money or building communities?

Airdrops, which are the free disbursal to early users to build momentum and reward them for their efforts, have been around for years. However, they were popular in 2020 thanks to Uniswap’s retroactive generosity. Nearly everyone who had used the exchange prior to a date received 400 UNI tokens. Those who retained their tokens also saw a significant increase.

As the market matured and more people joined the space, airdrops became more complicated. LooksRare, for example, attempted to siphon some OpenSea users by airdropping tokens. However they had to meet two requirements: They had to have purchased or sold at least 3 ETH of NFTs through OpenSea. Additionally, they would need to add a new NFT into the LooksRare marketplace.

Notable instances of bad airdrops include a lack liquidity for and phishing expeditions in which lured recipients to connect their wallets to malicious sites.

Builders need to ask: Are airdrops effective in generating new users and building communities?

Building a community

It can be difficult to attract new users if you are not an established exchange or NFT project. One way is to give away free tokens. Tokens in the DeFi or DAO space often have governance rights that allow them to vote on the development of the protocol. This allows airdrops to create value and skin for the game.

How can you avoid devaluing your token and drawing a large number of freeloaders who have no interest in contributing other than the airdrop?

Airdrops are a highly effective marketing strategy.

Airdrops are a great way to build community if you do it correctly. These can be a way to reward loyal users as well as generate buzz and momentum within the market. Many exchanges simply want to be relevant and gain traction in decentralized groups. It is important to have something to discuss in order to remain relevant and provide value to the audience.

Gary Vaynerchuk (chair of VaynerX, creator of VeeFriends) announced that each customer who purchased 12 copies of his new leadership guide — which is about twelve crucial emotional skills that are essential to his life — would receive one mystery NFT via an airdrop to their digital wallets. The book was fascinating on its own but the combination of the popularity and appreciation of his earlier VeeFriends NFTs made it a huge success.

Vaynerchuk actually receivedover one million pre-orders for the book in a 24 hour period.

Scams and airdrops

Is there a scam with airdrops Airdrops can be a scam, especially in new markets and technologies where it’s harder to discern the noise.

This means that it is less important to ask whether all airdrops are frauds but how to determine which airdrops came from high-impact, meaningful projects. Vaynerchuk and other public-facing people who depend on their reputation and legacy, know that even the slightest hint of fraud or failure to deliver value can have serious consequences.

Web3’s failure to succeed means that the audience is losing money. Vaynerchuk told Magazine that he doesn’t know how to navigate the world when an audience has lost money. Vaynerchuk’s market reputation would suffer if 12 customers who ordered 12 copies of the book didn’t receive an NFT, or were not satisfied with the experience. In fact, the majority of customers who purchased 12 print copies did so in order to receive the NFT and not for the 12 copies.

Sometimes it is easy to forget about reputational effects in new projects. It is easy to lose sight of the important things in life, such as dealing with problems and being busy.

If they are able to excite others about their growth and build a community with a set common principles, they can attract attention.

Magazine’s Justin Blau says that “Value accrues for the community as more people are interested.” He is the famous American DJ, co-founder, and CEO of Royal, which has the tagline “Own music and make royalties alongside artists.” Airdrops can be extremely strategic, especially early in the development process.

3lau is music royalty. See what we did there?

New music is being released

3LAU has proven to be particularly effective in leveraging airdrops that include music NFTs.

He co-founded Royal shortly after, which has transformed the music industry’s business model by allowing fans to travel with artists and having future royalties. He then announced an unexpected airdrop of his new track “Worst Case” for the 333 users who had provided the most referrals. This incentivized greater engagement and added value to the holders. These NFTs have a floor price of 2 ETH. This is more than $6,200 in current prices.

Royal is still in its early days, but there are many ways for artists to amaze their fans, inspire enthusiasm, and encourage participation via airdrops. 3LAU says:

It is not a scam to reward a community for using your product in retroactive ways. It is up the community to decide what they do.

The music is owned by the fans, creating a new level in connection between the artist and his/her fans. Royal’s business model allows artists to obtain the capital they need for launching a career without having to sell themselves to record labels or other intermediaries, who make a killing and leave the artist with very few.

These anecdotal stories do they match the data? The short answer is yes.

We have all the data

As a Stanford University economist and computational social scientist, I recently researched the rise in decentralized finance. This was done by compiling data on major crypto exchanges between 2014-2021. Comparatively to centralized exchanges, we found that DEXs with an airdrop exhibit experienced a faster growth rate in terms of their market capitalization growth and transactions growth.

Airdrops also had a positive impact on volume growth and market capitalization, even when other factors were taken into account such as the date of launch. These patterns will change over time, but the data supports strategic airdrops.

These results are likely to underestimate the value and potential benefits of airdrops, as they provide more value than the digital asset. If they serve an educational or community-building purpose, then there may be more social value.

stated that airdropping tokens to people new to the space is an amazing experience. Education through doing helps a lot. Helping people get their first NFT and giving exposure about the project are just nice feelings,”Vaynerchuk said on Twitter. If the Web3 revolution is inevitable then airdropping tokens offers a way for new users of the Web3 platform to try it out.

Airdrops are a great way of building communities.

Money printer goes brrr

Vaynerchuk says that airdrops are not free, even though they can be found in cryptocurrency markets.

“Supply is demand, supply and demand are supply and demand. Still, you will need to produce more than just short-term financial gifts by printing more money.

Although airdrops can still be useful if used sparingly, they will lose their appeal and surprise among existing or prospective users.

Airdrops can have a significant impact on the launch of a project once or twice, but artists should be aware that they may not yield the expected marginal returns.

3LAU states that while airdrops are fine in and of their own, the mechanics of them may not be. It is possible that an identical airdrop will be used to lead a project. Engagement may be boosted by pointing to something different and more exciting.

Know your product

Web3, particularly DeFi, is still a wild west. The rules are not yet fully established. The regulations that apply to all U.S. businesses are enforced by the Office of Foreign Asset Controls, United States Department of Treasury. Ivan Ravlich (co-founder and CEO at Hypernet Labs) explains to Magazine that projects must conduct Anti-Money Laundering and Know Your Customer checks on individuals who receive airdrops.

It is difficult to verify identities. Hypernet Labs created, which is a digital-native, privacy-preserving, nonfungible token that is sent to the user’s crypto wallet. Ravlich says that users can now transact legally with blockchain-based decentralization programs, something that was impossible in the past.

This service, whether it is provided by Hypernet Labs and others, is exactly what the Web3 community needs. Consider the confusion that has recently arisen between CryptoPunks version 1 and 2. Larva Labs issued a new version in 2017 due to a bug in the first CryptoPunks version. However, members of the community created variations of the original mint with different background colours. These NFTs were sold as historical relics by Larva Labs, which prompted a backlash and threatened legal action. These incidents could have been avoided if privacy-preserving validation mechanisms were in place.

OpenSea removed CryptoPunks V1 from their list.

Technology is not a panacea. However, it can be a useful tool. Airdrops are one example of technology that create momentum and foster community. Airdrops may not be the best idea, even if they are intended well.

Potential token and NFT holders must evaluate each project and determine if it holds any value. Accepting tokens from projects without a clear value proposition and a plan is a short-term strategy and not long-term wealth creation.

Opinion writer on 7trade7