Airdrops are a common practice among new crypto projects, but up to 88% of airdropped tokens lose value within three months, according to data collected over the past seven years.
A September 18 report by DappRadar analyst Sara Gherghelas found that since 2017, projects have distributed more than $20 billion in airdrops, but 88% of airdropped tokens lost value within months, “highlighting the gap between short-term hype and long-term sustainability.”
Speaking to Cointelegraph, DappRadar head of content Robert Hoogendoorn said token distribution is key to success in an airdrop; The projects want to put their token in the hands of diamond holders.
“Some of the most successful airdrops used phased distribution, for example, Optimism, or very targeted distribution, as ways to limit liquidation by the community. However, there is no single recipe for success, and it all comes down to distribution, product-market fit, and token utility,” he said.
“In addition, general market trends also have a big impact on airdrop valuations. A successful airdrop is one that manages to keep the community interested in the product, even after the token is deployed.”
The first recorded cryptocurrency airdrop occurred in 2014, when the Auroracoin project launched its native currency, AUR, as an Icelandic alternative to Bitcoin.
Crypto Projects Should Carefully Select Their Holders
In the decade since Auroracoin’s launch, Hoogendoorn said airdrops are more common during a bull market and have been evolving with measures such as on-chain staking, social media campaigns and liquidity provision.
However, Hoogendoorn maintains that projects need to be more careful when analyzing a user’s on-chain activity, trading behavior, and even “reputation” on social media to avoid cases of airdrop hunting and farming.
“We are already seeing a trend where airdrop distribution leverages reputation, for example by integrating social media activity. Additionally, several projects have used engagement and reward platforms to distribute at least a portion of their airdrop allocation,” he said.
Bad project airdrops are doomed to failure
Jackson Denka, CEO of Azura, a DeFi platform backed by the Winklevoss twins, told Cointelegraph that many airdrop tokens lose value because they are tied to protocols that are fundamentally wrong, “have no real adoption, and generate no revenue.”
“No financial engineering, incentives or bribes to users can change the fact that it is better to invest in some assets than others,” he said.
“Airdrops, no matter how flawed their structure, if associated with a good or growing product, will increase in price over a long enough time horizon.”
Hyperliquid was praised for delivering the best-ever airdrop in November 2024 by excluding venture capitalists and rigorously encouraging community participation.
In the long term, Denka expects airdrops to take a backseat as more initial coin offerings emerge and investors pay to acquire tokens before they are launched on the open market, effectively serving as an initial public offering but using crypto tokens.
“No other financial market in the world gives away capital to its users. Uber didn’t do this, Robinhood didn’t do this and Facebook didn’t do this,” he said.
“We will view the popularity of airdrops as a temporary blip in the broader history of crypto markets, although they will always exist.”
Liquidity also needs to be addressed
Another key issue airdrops face is liquidity. Kanny Lee, CEO of SecondSwap, a marketplace for trading locked tokens, told Cointelegraph that airdrops lose value because the projects behind them release too much liquidity too quickly, flooding the market with tokens.
According to Lee, two recent successful examples of airdrops rewarded users for continued activity, helping to maintain liquidity even after initial volatility, and used a gradual unlocking program to bring the offering to the market in stages.
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“Both approaches point to the same principle: value lasts longer when users remain engaged and liquidity increases progressively,” he added.
In the future, Lee believes that trends around rewarding users for holding tokens will become standard practice.
“Sustainable liquidity should be the primary goal of any airdrop design. It’s not about how many wallets receive tokens, but how long those tokens remain active in the market,” he said.
“Programs that reward continued participation or release supply in stages help prevent the sharp corrections that follow mass distributions.”
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