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Christmas holidays have been "Airdrop season" this year. For the past months, we've seen multiple major Airdrops ($SOS, $ENS, $GAS, $CLUB…) that caught all the attention on crypto Twitter.

ENS launched their $ENS Token to give their community power over future strategic decisions, Open DAO created the $SOS token and distributed it "to pay tribute, protect, and promote" the NFT community,  GAS DAO airdropped some $GAS to reward those using the Ethereum network, and Seedclub released $CLUB to open up and involve more their community.

There's much to learn and lessons to draw from those experiments. This essay aims to analyze what worked and what didn't to build a useful playbook and help future DAO leaders leverage this token distribution strategy.

0 - Before starting

Before jumping right into it, I feel it's essential to explain a few things further.

First, what exactly is an Airdrop? An airdrop is a token distribution, usually for free, to multiple wallet addresses. Because the blockchain is a public database, any new project can track your online activity and reward you for your previous actions. The most you participate in communities, the most you get rewarded. Because your data are interoperable, every Web3 user brings its reputation and past activity to new projects.

Second, It is essential to note that there are two types of Airdrop. The "Exit to the community" type that comes at a later stage when a community wants to open even more its community and decentralize its power (what $ENS and $CLUB did), and the "Bringing awareness" type that usually comes at the very inception of a community ($SOS and $GAS). We'll focus on the second type in this essay.

Finally, based on the previous experiments made by multiple tokenized communities, it is obvious that Airdrops are a valuable strategy to drive awareness and get new users. The crypto space to date is, first and foremost, an attention economy, and giving free money is the best way to bring attention to new projects.

But beyond the few first days of hype, the real question is, are airdrops useful for building a sustainable project and attracting new high-quality contributors?

1 - You said Airdrop?

1.1 - Airdrops are a valuable tool to involve people in your project

Getting attention and bringing new users to the project is great, but what's more important for DAOs is getting active contributors. More than a method for user acquisition, Airdrops should be seen as a method for recruiting contributors. Airdropping a token is the fastest way to hit the masses and rally new people to your cause. Through its $SOS drop, the Open DAO reached ~213k individuals (token holders), from which they successfully convinced ~57k members to join their Discord. It means roughly 1/3 of the people that got airdropped tokens got interested enough in the project to join their Discord and see what's happening there. What's even more impressive is that, from those ~57k members, they convinced ~2.1k to be actively involved in the DAO and help the project grow (data from the average vote on their proposals). Such numbers would be impossible to reach for traditional Web2 projects.

When letting people claim tokens and get "free" money, the community leaders behind the project ensure they align incentives with their community and ensure members will evangelize their community, put in some work, and forever rave about their project. To see the value of the token they received going up, directly correlated to the project's success, new individuals will start working to make the project grow. A token that then goes up in value creates more incentives for new developers and various teams to build for the project, creating a positive feedback loop.

Ultimately, it's the community that will help the project rise from all the noise in the market. Aligning incentives is everything.

1.2 - Airdrops embrace the ethos of DAOs

Airdrops reward people for being users in Web3. Playing around and testing new decentralized applications is now a full-time job. If you were an early user of Instagram and have brought millions of people to the platform, the only thing you gained is free access to the platform. No free money. And that's the promise of Web3 compared to Web2. Being fairer by sharing the upsides with the users that actually created value to the platform will incentivize more people to work on promising projects and join DAOs. By bringing these new contributors, Airdrops also play a major role in making DAOs more Decentralized and Autonomous.

While the term DAO is broadly used across communities, we're still in the early stage of this type of organization, and there isn't much decentralization and autonomy in today's tokenized communities.

For a DAO to be truly autonomous, it needs its members to create proposals and start working on projects to make the project grow by themselves, without a leader paving the way for each initiative. As mentioned before, when receiving tokens, each holder is then incentivized to put in some work without waiting for an order or asking for permission to make the project grow as the more the project wins, the more the users win, meaning The power is now with the users, another promise of Web3.

With this new power also come great responsibilities. When airdropping a token, DAO leaders are, in reality, airdropping voting powers and the right to governance in their community. It starts a path to community ownership and ensures a greater decentralization. New holders become community owners officially and govern the community's network.

We saw, after the recent drops, new contributors joining these projects. But where Open DAO attracted ~2k individuals to vote on their proposals, Gas DAO attracted "only" on average 150 to vote on theirs…

2 - The pitfalls to avoid

Airdrop is a means, not an end. With weak projects, the new holders dump their tokens and leave as soon as the Airdrop is done. That's exactly what happened with Gas DAO. With no solid roadmap, product, and team behind the project, Gas DAO didn't retain their new users and convert them into active contributors.

The small value they have created will soon evaporate, and the DAO will disappear. It's inevitable. Because what early Airdrops are good at is bringing awareness, not creating the value of the project. What usually happens is that with more attention created with the Airdrop, more people decide to buy the token and drive the price up. With higher prices, more people decide they're happy with their earnings and decide to sell. As the price stagnates and the overall attention drops, fewer new people buy the native token, and the value plummets.

To be successful and actually bring new active contributors, the Airdrop should be done only when a clear roadmap is defined and with the premise of a product. One could argue this is against the DAO mentality and that every decision, particularly the roadmap, should be taken fairly between all DAO's members. Even though decentralization is essential, DAO will always need some form of centralized power and a core team to kick-off initiatives, at least for DAOs in the current form we know them. It will be much easier to convince people to join the project with a clear roadmap.

3 - A Web3 Playbook to efficient Airdrops

With a strong project and a well-designed airdrop, chances are the token's value won't drop completely. With a token that goes up in value, it creates more incentives for developers and various teams to build for your project that, in return for their efforts, will get paid in compensation with the project's native token.

Let's find out together how to create a well-designed Airdrop.

• Make sure to create a Liquidity Pool big enough - The value of the token comes from what we call a Liquidity Pool. Creating a liquidity pool (LP) for a project allows anyone to buy the native token in exchange for other cryptocurrencies with value in USD, giving, therefore, a financial value to the native token. For the $SOS airdrop, for example, the initial liquidity came from 9x9x9eth and their cohort's own pockets. The risk when creating a Liquidity Pool (SOS/ETH, for example) not big enough is that too many people withdraw their token, exchanging all their $SOS for the $ETH that comes from the team's pocket, letting the pool empty in ETH and full in SOS with no value.
• Gather data from your community - An Airdrop should gather attention from new people and reward the core team and early believers in the project that has helped since its inception. Find data on who helped the most on Discord, shared on Twitter, or supported the crowdfunding. A great method is then to do what Water & Music did - devised a custom-blended weighting system to determine their most engaged Discord members, accounting for multiple types/dimensions of engagement: - message count (weight 0.3) - message length (0.4) - reacts given to others (0.1) - reacts received from others (0.2). These holders will be the first to spread the word about the Airdrop.
• Write a solid whitepaper - Each Airdrop needs to come with a solid whitepaper that explains the token's purpose and future. For example, to do so, you can take a look at the distribution of past airdrops, which should give you insights into what's happening with these tokens. You can, for example, look at the number of tokens allocated to the founding team compared to the tokens allocated to the treasury (that can serve to build tools for the community, help grow the ecosystem and allow Staking (high % APR), which incentivizes holding.

Closing thoughts

Coming back to the thesis of this essay, yes, airdrops are an excellent strategy to build a sustainable project and seem promising to attract high-quality contributors if done the right way.

I'm convinced we'll see more airdrops shortly, and I bet the ones we're seeing today are peanuts compared to what's to come, as it will become more and more complicated to drive attention to its project.

Sure, there will be lots of scams and fake airdrops, which will tarnish Airdrop's image, but I'm convinced this token distribution method will be more used and used healthily to become one of the most effective marketing strategies for new projects.

There's a huge hype in every innovation, followed by a huge down, before coming back slowly in a more sustainable way. And that's exactly what's happening with Airdrops.

When attention is directed to a new project, crypto people ask themselves, “how do I make the most out of this new thing?”. If you succeed in providing them a hope to find a tribe, a long-term goal, social status within this community, and credibility in the space, they might choose to stay for the long-term and keep simply a quick bag of cash. While a good way to capture attention, the real deal begins after the Airdrop, when the DAO team needs to transform this attention (that could be seen as a currency) into active believers and contributors in the project.

While this essay is a great start to help projects better leverage Airdrops, many questions remain. How should Web2-native brands airdrop tokens to their historical followers? What would be a good step-by-step strategy to use with an airdrop to recruit contributors instead of acquiring users? How to provide more room for contributors to have a say in assessing their value?

We expect more playbooks around Airdrops coming soon from the crypto community, and we would be happy to collaborate and explore this subject further.

If you’re a creator and want to do an Airdrop, we’ve created a comprehensible guide on how to do it through Coinvise, with step-by-step tutorials and videos.

Want more?

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