How to Airdrop: Why Core Users Matter Most

Airdrops have become an essential strategy for crypto projects aiming to build a strong and engaged community. By distributing tokens freely, projects can generate buzz, reward loyal users, and encourage adoption. However, the effectiveness of an airdrop depends heavily on targeting the right recipients. Distributing tokens to core users—those who are deeply involved and committed to the platform—has proven to be significantly more beneficial than a broad, indiscriminate distribution. This article will explore why focusing on core users yields better results and provide data-driven examples to support this approach.

Successful Cases of Token Distribution in Crypto

Several successful token distributions have highlighted the importance of targeting core users. For example, Uniswap’s 2020 airdrop distributed 400 UNI tokens to early adopters. This approach rewarded those who actively used and supported the platform, leading to increased loyalty and long-term engagement. As evident from the 6MV’s study “Airdrops: An Analysis of Over 2,000,000 Events”, UNI’s price surged and maintained a strong market presence.

Similarly, the dYdX Airdrop in August 2021 distributed its governance token, DYDX, to users who had previously traded on the platform. The airdrop was designed to reward early adopters and active traders, encouraging them to participate in the platform’s governance and continue using its services. This strategy helped dYdX build a strong community of dedicated users and boosted the platform’s growth.

In March 2023, the Arbitrum Airdrop distributed its governance token, ARB, to active participants and genuine network users. This approach aimed to reward those who contributed to the ecosystem’s growth and foster long-term engagement. Initially, the token was estimated to trade between $0.64 and $2.07. Despite initial concerns about price retracement, ARB’s value surged in a week after the airdrop. This targeted distribution helped Arbitrum build a strong community of dedicated users and maintain a robust market presence.

Who Are Core Users?

Core users are the dedicated, active participants within a protocol’s community. They frequently interact with the platform, provide valuable feedback, and contribute to its growth. In accordance with findings of Chibuike C. Mbanefo and Sara S. Grobbelaar in the article “Unveiling the core elements of platform ecosystem development”, core users are more likely to hold and utilize the tokens, enhancing the platform’s stability and development – unlike the general user base.

Comparison with Widespread Audience:

• Core Users: Engaged, long-term participants, adding value.
• General Users: Larger, less engaged audience, prone to selling tokens quickly.

Example of Widespread Rewarding Leading to Token Price Dump: Data from the analysis of over 2 million airdrop events shows that broad airdrops often result in token price dumps. For example, in the VELO token airdrop, where tokens were distributed to a large number of users, a significant portion of recipients sold their tokens immediately. This led to a 62% price drop within a week (from $0.04229 to $0.0167) according to CoinMarketCap, demonstrating the risks of non-targeted distributions. Another example is $1INCH airdrop that showed 34% price drop (from $1.628 to $1.058) in a single week according to CoinMarketCap.

The Impact of Airdropping Tokens to All Users

If every project airdropped tokens to all users, the immediate consequence would likely be token price volatility and instability. According to a study “Airdrops: Giving Money Away Is Harder Than It Seems” by Matter Labs with The Hebrew University of Jerusalem and Imperial College London, mass distributions attract opportunistic users who sell quickly, driving down the token’s value and undermining the airdrop’s intended benefits.

Price Volatility

When distributed broadly, many recipients sell their tokens immediately, causing sharp price declines and market destabilization. For instance, the SOS token experienced a rapid price drop post-airdrop due to mass sell-offs by non-core users. The price decreased by -14.98%, from 0.000000377 USD to 0.000000320 USD according to CoinMarketCap. Moreover, the post-airdrop period saw a significant drop in trading volume, which decreased by -59.98% as reported on CoinMarketCap.

Opportunistic Behavior

Mass airdrops attract opportunistic users interested in quick profits rather than long-term engagement. These users rarely contribute to the community or project growth. For example, the analysis of Gas DAO’s mass airdrop in late 2021 reveals clear signs of opportunistic trading. One week after the airdrop, the token’s price dropped to $0.000119 according to CoinMarketCap with a high volume of 31 million tokens, indicating rapid sell-offs. By one month, the price plummeted to $0.000022 with significantly lower volume, reflecting waning interest. Two months post-airdrop, the price stabilized at $0.000021 according to CoinMarketCap with a modest volume, further confirming that most users were driven by short-term gains rather than long-term commitment to the project.

Undermining Community Loyalty

Brave New Coin’s study “The Strategic Impact of Airdrop Programs in the Crypto Environment” shows that broadly targeted airdrops risk undermining community loyalty. This weakens the community and reduces long-term engagement, as evidenced by the X2Y2 token’s performance following its airdrop on February 15th, 2022.

In the week following the airdrop, X2Y2’s price fell from $3.50 to $2.80, a 20% decrease according to CoinMarketCap, indicating an initial sell-off likely driven by recipients cashing in their free tokens. By the one-month mark, the price further dropped to $1.75, representing a 50% decline from the initial price. After two months, the token’s value plummeted to $0.15, a staggering 95% drop as noted on CoinMarketCap.

This precipitous decline underscores how broadly targeted airdrops can erode community loyalty, as recipients who are not genuinely invested in the project’s long-term success are more likely to sell immediately, driving down the token’s value and weakening the community’s engagement.

Why Airdropping Only to Core Users is Much Better

Price Stability

Targeting core users results in greater price stability. Core users are less likely to sell their tokens immediately, reducing the selling pressure and preventing sharp price drops.

• 85-91% of Core Users Hold Their Tokens: Data from the 6MV’s study shows that 85.07% of core users who received less than 10% of total supply in an airdrop held their tokens for at least 60 days. When more than 10% was airdropped, this figure rose to 91.08%. This holding behavior greatly reduces selling pressure and stabilizes the price.
• Widespread Airdrops Result in More Sellers: In contrast, widespread airdrops resulted in nearly double the percentage of sellers, with 13.51% of users selling when less than 10% of the supply was airdropped, and 12.06% selling when more than 10% was airdropped. This higher selling pressure contributes to price volatility and potential drops.

Enhanced Community Engagement Core users are more engaged and contribute actively to the project’s development. By rewarding these users, projects can foster a loyal and supportive community. Core users are more likely to provide valuable feedback, participate in governance, and promote the project, driving its long-term success.

Reduced Opportunistic Behavior By focusing on core users, projects minimize the risk of tokens being acquired by opportunistic users who are only interested in quick profits. This targeted approach ensures that tokens remain in the hands of individuals who are genuinely interested in the project’s success, contributing to its stability and growth. Yi-Shun Wang, Nam Tien Duong, Chia-Hsuan Ying & Yun-Chi Chang highlighted that intrinsic motivations, which are often aligned with genuine interest in the project’s success, play a significant role in investment behavior in their article “What Drives People’s Cryptocurrency Investment Behavior”.

Long-term Commitment Core users are more likely to hold onto their tokens and use them within the ecosystem, enhancing the project’s long-term stability. Their commitment and active participation can help drive the project forward, ensuring sustained growth and development.

Proof of Success

The data from over 40 airdrop events from the aforementioned 6MV’s study shows that targeting core users leads to better price performance and less volatility. Targeting core users ensures that tokens are placed in the hands of those who are committed to the project’s success. These users are more likely to hold and use the tokens, contributing to a stable and supportive ecosystem. Data from the article shows that airdrops to core users result in better price performance and less volatility.

Effective airdrop strategies focus on rewarding core users, ensuring that tokens reach those most likely to contribute to the platform’s long-term success. By targeting engaged and active participants, projects can foster a loyal community, reduce price volatility, and drive sustainable growth. This targeted approach not only maximizes the benefits of airdrops but also ensures the stability and prosperity of the cryptocurrency ecosystem.