- Airdrops are popular with DeFi users.
- DefiLlama's 0xngmi explores how they benefit the projects that conducted them.
0xngmi is a developer for DefiLlama. Opinions are his own.
Airdrops have become one of the biggest draws for users in DeFi.
Hopeful hunters pile into new blockchains in the hope of becoming eligible for future rewards of valuable tokens.
For the chains themselves, airdrop token launches are seen as powerful marketing tools, boosting their user counts and galvanising their communities.
This year, several chains rewarded users with token airdrops. But just how effective were the launches in drawing in users? Let’s look at the data.
Maintained activity
Blockchains launching their own tokens often trigger sustained peaks in activity and create lasting engagement. Optimism is one example where activity increased and stayed high after launching its OP token in 2022.
Many attribute this effect to incentive programmes after token launches, which promise rewards to users who bridge over funds.
However, even chains that don’t explicitly offer or advertise such campaigns, such as Starknet, also maintain higher levels of deposits after launching their tokens.
Another example is perpetual futures trading platform Hyperliquid.
The following is a chart of only perpetual futures volume before and after its HYPE token launch and airdrop. The chart excludes spot volume of the platform’s HYPE token.
HYPE perpetual futures volume is almost negligible on the chart, accounting for around 5% of daily volume, so all volume is core volume of their perps product, not volume driven by users trading their own token.
The HYPE airdrop led to a huge increase in non-HYPE trading on Hyperliquid.
We can see this effect again in a chart showing the growth of new Hyperliquid users.
Looking at other chains, this pattern repeats frequently: the native token airdrop is a significant growth catalyst that leads to new users and increased growth that in many cases sustains over time.
Overcoming inertia
So why does this happen?
Part of it is probably due to the heavy increase in attention that the chain receives as everyone in crypto shifts their attention towards it for a few days, and some of that attention converts to new users like in any other product.
But I hypothesise that the main reason why we see this pattern is that participating in the token launch — investing in or trading the newly-launched token — is an activity that can often only be done on that token’s chain.
In the current crypto environment, chains have become commoditised.
They all have decentralised exchanges, or DEXs, where users can trade bridged versions of major crypto assets like Bitcoin and Ethereum, lending protocols where they can borrow funds, perpetual futures protocols for leverage trading, and so on.
Basically, you can do pretty much all the major crypto activities on any chain.
So if all major needs are served, why bridge to other chains? It’s the same story for all products: when a consumer is already using a product and there’s a competitor that’s slightly better, in most cases, users won’t switch because of inertia and switching costs.
But when a new chain token launches, you can trade it only on that chain, so this is a catalyst that forces anyone that wants to trade it to bridge into the chain and try the products there, then if they like them, they might keep using them or fully switch to them.
That’s what I think happened with Hyperliquid — users came to trade HYPE and ended up moving their perpetual futures trading there because they liked the product.
Case study: Scroll
A great case study that supports my theory is Scroll’s token launch, in October. It was a highly anticipated chain token launch like the other ones we’ve covered, but in this case Scroll chose to launch with a big Binance partnership.
Scroll’s SCR token was tradable on Binance from the moment it launched, and the chain gave Binance a lot of tokens for liquidity. What’s more, Scroll also gave Binance a lot of tokens that users could earn on the exchange.
Due to these factors, the best place to trade SCR on its launch wasn’t the Scroll chain itself, but Binance.
When you look at Scroll’s DEX volume post-airdrop, it shows a very different pattern versus the other cases we looked at, with usage diminishing. Users that wanted to trade the token didn’t have to use the chain, so many didn’t get onboarded like in the other cases.
Similar catalysts
When we look at other recent growth catalysts, they’re similar: it’s about having something that can only be done on your chain.
A huge part of the initial growth story for Coinbase’s Base chain was SocialFi platform Friend.tech. Users moved to Base because it was the only place where they could trade X profiles and they wanted to do that.
Arbinyan, a protocol where users deposited Ether to earn the protocol’s NYAN token, created a similar effect. It launched shortly after the Arbitrum chain went live and generated a huge buzz as users rushed in to farm it.
However, such growth catalysts aren’t easily reproducible.
Nobody predicted that Friend.tech would be a hit before it launched. The previous SocialFi experiments by its founder had largely flopped, and attempts to replicate Arbinyan led to DeFi users farming and dumping projects heavily since everyone already knew how the game would play out.
The tokens subsequently went to zero.
In comparison, launching a native token is one of the few catalysts that a chain’s team gets to fully control.
What’s interesting is that recently we’ve seen two major blockchains, Move and Abstract, throw this away by launching their tokens on another chain before their own chain is live.
When the chains eventually launch, these teams will have a major tool missing in their arsenal, and while it’s completely possible to grow without the token launch boost, as proven by Base, it will likely make it more difficult for them.
Tim Craig edited this article.
