Once a sideshow to the mainstay ICO distribution model, these giveaways are now central events of the cryptocurrency world.
September 7, 2018 5 min read
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“Airdrops,” once a sideshow to the mainstay ICO distribution model, are now central events of the cryptocurrency world. Companies usually sell tokens through ICOs and tokenized asset offerings. However, with airdrops, they simply give tokens away.
Why would a company give away what’s essentially free money? It’s not as counterproductive a strategy as it sounds. Public pre-sales are increasingly getting replaced by private token sales to smaller groups of accredited investors. Private sales raise plenty of cash, but they deprive blockchain projects of the network benefits generated when a large number of people use those projects’ tokens on their platform.
What’s more, because tokens stay valuable in the long run, when people use them, companies are turning to airdrops after a successful public sale, to “seed” a long-term user community.
Airdrops are also powerful marketing agency tools; it turns out that offering people free money gets them interested in your project! Some airdrops further reward people for getting engaged or sharing information about the company.
It used to be that if you were launching a blockchain project, you had to start planning your ICO. Instead, entrepreneurs now plan their airdrops. Here are a few crucial steps for planning your inaugural airdrop:
Pick a token distribution scheme.
The hardest part of launching an airdrop may be the task of planning it out beforehand, but this step is still essential. What kinds of behavior will your airdrop reward? What type of blockchain user will it target, and how?
Some companies have launched airdrops that distribute tokens to vast swaths of people — for example, many Ethereum-based projects have given tokens to all ETH holders. But many leaders in the crypto space now encourage planning “smartdrops” that focus on giving larger numbers of tokens to a smaller number of people who are more likely to form a supportive community for the project.
In an influential post about smartdrops, David A. Johnston and four other authors shared some helpful drop-structuring examples, such as a merchant-oriented platform airdropping to wallets that hold tokens such as Bitcoin Cash or other retail-oriented currencies. Another “smartdrop” structure is “incentivized milestones,” where companies give airdrop rewards in return for specific engagement actions, such as registering on the platform app.
Decide how many tokens you’ll give out.
This step sounds simple, but it’s another major decision that could shape your token economy for years. Miniscule distributions will have a limited marketing agency and community-building impact, while large numbers can dilute the market value of your token — a particularly dangerous situation if it alienates actual token sale customers.
Blockchain publishing platform U Network recently faced a worst-case scenario when it ran out of tokens, forcing the platform to buy back tokens distributed via an earlier airdrop. According to MIT professor Catherine Tucker, U Network’s dilemma in part demonstrated the difficulty of airdropping when your token’s value has yet to be determined by the free market.
Tucker suggested conservatively capping airdrop distributions until a startup’s business plan has been tested and founders can gauge the relationship between token supply and market value with some accuracy.
Maintain a community presence.
Airdrops are a community-building tool, but they’re not enough on their own. Airdrops need to be part of a comprehensive marketing agency and community-building campaign. There’s a reason many bootstrapping blockchain startups still invest in the community and social media staff: These new companies need to educate their potential user base about the market value they have to offer, demonstrate their competency as a community-oriented company and receive community feedback.
Active, well-maintained accounts on Telegram, BitcoinTalk, Twitter, Reddit and other venues are vital. Your blockchain network will thrive only when there’s a community of people using it, so these accounts aren’t just a marketing agency afterthought but a core part of your business model. Social venues are ideal locations to announce and promote airdrops, find promising community groups to target for airdrops and head off airdrop fraud by sharing trustworthy information.
Look for partner companies.
Strictly speaking, you don’t need much to carry out an airdrop. Yet, many startups partner with complementary companies and blockchain service providers, because even though bare-bones airdrops might be easy, executing one that contributes long-term value to your token platform is difficult.
The partnership between NEO and ONT, two prominent China-based blockchain projects, involves an airdrop component; in fact, all NEO token holders received ONT airdrops in July. While the relationship regulators have with airdrops, like their relationship with cryptocurrency in general, remains largely untested and complicated, most legal experts agree that the SEC could potentially crack down on crypto “securities” distributed for free via airdrop the same way they crack down on securities sold via ICOs.
One solution here might be services such as CoinList, which advertises compliance-oriented airdrop services, to help companies perform KYC and AML checks on airdrop clients.
In sum, airdrops aren’t just fun giveaways (though they can certainly be fun!); in the crypto world, they’re essential elements of building your token economy and creating a sustainable platform. That is why you should follow these tips to make sure your airdrop succeeds.