Recent airdrop projects have had poor performance - Are the days of token airdrops over?

Although April was extremely bustling with a series of token airdrop projects, the price performance when listed on the exchange was not positive. Are investors gradually turning away from "free" tokens like this?

Recent airdrop tokens have all performed poorly

April 2024 witnessed many large and small token airdrop events in the market. It can be said that the past month has been extremely busy with the launches of Ethena, Wormhole, Parcl, Tensor, Omni Network, Renzo, Kamino,... Coming soon, there will also be EigenLayer's EIGEN - one of the largest DeFi projects. Currently; Avail - blockchain spun off from Polygon; or friend.tech - the leading SocialFi application on layer-2 Base.

But unfortunately, when the token was opened for trading, the obvious result was that the price began to dump heavily.

As the Blur account below shared the price chart of recent airdrop tokens, they all show only a downward trend:

Solana lending platform Kamino launched its governance token on April 30. Within an hour of going public, KMNO dropped more than 63% as airdrop recipients rushed to withdraw their funds.

Or Renzo's REZ token launched at the same time also suffered the same fate, falling 40% in just 1 day.

The reason for the token airdrop price is quite easy to understand. Most people "farm for airdrops" just hoping to receive "free" tokens and then sell them for profit. Therefore, there is no need for this group to hold. Once they receive the token, they "sell it immediately".

Meanwhile, other investors, although evaluating the project's potential, will not buy tokens at this stage. They of course see the situation where the price is being heavily released by "airdrops", so they will wait until this release pressure is over before they can consider buying.

Another reason is that the valuation of these projects is too high.

Pricing is too high

Wormhole (W) TGE with 18% of total supply, or Ethena's ENA of only 9.5%. But according to CoinGecko, W has FDV of more than 6 billion USD, ENA has up to 11 billion USD.

Low circulating supply easily pushes prices up temporarily, but over time as more and more tokens are unlocked into circulation, token prices will only continue to decline.

Investors in today's market are all "veterans", it is difficult to convince them to buy tokens of a project with FDV up to 10 billion USD.

Marc Weinstein, investment partner of Mechanism Capital, frankly:

“Investors do not believe that a project launched with an 11-digit valuation has the potential to increase in value.”

The high valuation is partly due to the hype surrounding newly launched projects. Ethena, Wormhole, Tensor or the upcoming EigenLayer are all promoted with beautiful "keywords" that attract FOMO from investors and speculators...

As Thor Hartvigsen's account summarizes below, the current top projects all have FDV of hundreds of millions to billions of dollars, but the actual amount of tokens in circulation is quite small. During the remaining months of 2024, these projects will continue to unlock, putting more and more tokens into circulation.

That is an objective factor coming from the market. Good projects that are too hyped at the time of launch will of course have higher valuations than the average. But there is also a subjective factor coming from the project team itself..

Intentional project?

An anonymous source told DL News that for some projects, launching at a high FDV could be intentional.

“The most optimistic assumption is that they want to use their tokens as currency and high FDV also means they are holding more valuable assets.”

But for some projects, there are even more condemnable reasons.

"The project team and investment funds can sell tokens at a cheaper price through the OTC route before the token goes public, thereby pocketing a decent amount of money."

Weinstein also speculated about another reason:

“If you start at $20 billion and drop 95% in a bear market, you're still a $2 billion project.”

Not to mention the tokenomics controversies that EigenLayer, Renzo or Starknet encountered at the time of token announcement, attracting many mixed opinions from the investment and airdrop community.

Even more "excessive", LayerZero wants airdrop makers to self-report sybil behavior. According to the team, the project wants to highlight the activities of real users and make sustainable contributions, instead of people who are just waiting to earn tokens and then exit through sybil behavior - that is, create many wallets and then do other things. Basic trading to qualify for airdrop.

Meanwhile, the project itself wanted to attract users to "generate numbers" and opened the airdrop, creating conditions for people to "farm". Then when the airdrop approached, the project turned its back on its own supporters, asking the airdrop farmers to "confess" themselves. If they didn't turn themselves in, they gave a bounty to force the community to denounce each other.

Will Airdrop ever expire?

Investors are never just "white sheep" just waiting for a project to "grab their feathers", they are wise enough to recognize "tactics" of this type.

And the results are clearly reflected on the price chart. The token indicates a major downward trend, making it difficult to continue moving forward. The airdrop recipient also only focuses on selling off tokens, which has enough reasons to not be able to "hold to die" with the project.

However, airdrop tokens are still the main trend of new projects that want to attract users. It is difficult to develop long-term without the support of the "air plow" community. This is a mutually beneficial relationship required to maintain the balance of the crypto market.

User hitesh.eth compiled the data of the 18 most recent airdrops and found that:

- JTO airdrop is the fairest of these, distributing 10% of total supply to TGE, the community receives a lot of "free tokens".

- Jupiter allocates up to 40% of the total supply to the "air farming" community, Season 1 receives 10%. It can be seen that the project is quite comfortable for users, compared to the "confusing" distribution method of EigenLayer recently.

- TIA has the best price performance 1 day after listing among these.

- On the contrary, PARCL had the worst performance, down 60% after 1 trading day.

- On average, projects allocate 5.87% of the total TGE supply to airdrops, we can use this number as a standard to compare with the following projects.

friend.tech - success or failure?

Another notable case study is friend.tech, when this web3 social network project just opened the token claim portal on May 3, 2024.

Initially, it was thought that friend.tech would continue to be a poorly performing airdrop project similar to its predecessors, when claimants were massively released, causing the FRIEND token price to plummet by more than 90%.

But unlike expectations, FRIEND price shows signs of recovery when nearly 85% of the airdrop has been received. At the same time, the APR of the LP FRIEND/ETH pool was as high as 2,800%, showing that users are willing to buy back FRIEND at the bottom price to continue participating in other project activities after the airdrop.

Up to now, friend.tech can be considered a successful case, when even though the airdrop is 100% completely to the community, there is no shortage of "air farmers" coming in to earn "free tokens", but there is also a large part. Loyal users stay with the project.

Perhaps developers in the future should follow the example of friend.tech, focusing on building a truly community-oriented product that meets user needs, rather than viewing their users as "products". "plan money".

Criteria of a successful airdrop project

Or as the founder of Uniswap commented on a successful airdrop project as follows:

- Airdrop tokens, not points;

- Don't consider your users as "products" to be "milked";

- Create liquidity right from the first days, don't use the "trick" of launching at too high a valuation with too low token supply as mentioned above;

- Don't be too "stingy" with your community, the airdrop quantity is large enough for users. If the project really thinks the community doesn't "deserve" to receive the airdrop, then don't announce the airdrop in the first place.