House of Cards: Why Airdrops Don't Work
Three Things #126: June 30, 2024
Since their inception a few years ago, I’ve thought airdrops were a dumb idea. And I say this as someone who has personally benefited from them. The first time I saw an airdrop, I felt this way, and despite not giving them much thought since, my opinion hasn’t changed.
Recently, airdrops have become a hot topic again with the rise of points games and massive airdrops like Eigen, Starkware, and LayerZero. Airdrop farming has also become more sophisticated. Occasionally, people ask if we’ll do an airdrop at Spacemesh. We never have, and I strongly suspect we never will.
Initially, I hesitated to write about this topic because I didn’t think I had much more to say. “Airdrops are dumb and you should stop already” seemed to cover it. But upon reflection, I realized that airdrops are an attempt to do something noble: reward a project’s users and community, and give users a stake in the project and its governance. While the means are flawed, the goals are commendable.
This ties into a broader, older topic: decentralized governance and cryptoeconomics. So let’s explore why projects do airdrops, why I dislike them, and what we should do instead.
Thing #1: Why Airdrop? 🪂
“Popularity makes no promise of quality” - Common proverb
Let’s start by steelmanning the other side. Airdrops are popular for several reasons, some more noble than others. One of the most obvious reasons is simply because other teams do them. This cargo cult mentality is pervasive: “It worked for Uniswap, so if we do an airdrop, we can be the next Uniswap.” This has led to a culture of airdropping, where users now expect it as a standard practice.
Another fundamental reason for airdrops is the massive oversupply of platforms and blockspace compared to the undersupply of apps and users. This imbalance has persisted for years, and it’s frustrating. I and many others are working on building infrastructure to enable killer web3 apps, but the golden age of the decentralized web is probably still a few years away.
In this competitive landscape, projects funded by a stupid amount of VC dollars are vying for a limited number of users, their dollars, and their attention. It’s tough to stand out, especially if you’re another copy-pasta L2 or marketplace. Airdrops, whether you love or hate them, can be an effective short-term marketing tool. They get people talking about a project and might even encourage some to try it who wouldn’t have otherwise.
Regulatory constraints also play a role. This is probably a small reason relative to the others, but it’s at least a partially valid reason. As I said in the intro, the desire to get tokens, representing both value and governance rights, into the hands of the community is noble, and regulatory obstacles have made this much harder than it used to be, and harder than it ought to be.
With increasing scrutiny, conducting an ICO and selling coins to outsiders often falls into the territory of unlicensed security offerings. Airdrops, while a regulatory gray area, aren’t as clear-cut illegal as crowdsales, making them a more attractive option for projects looking to distribute tokens. Moreover, airdrops can distribute tokens without immediately implying a valuation for the project or network, keeping future fundraising options open.
Given these reasons, it’s tempting to overlook the flaws and consider airdrops as a necessary evil. They aim to distribute value and governance rights to the community, which is a noble goal. But the execution often falls short, leading to numerous problems. Let’s look at some of those problems.
Thing #2: Why They’re Dumb 💩
“The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor” - Campbell’s Law
Let’s be clear: whether airdrops are effective or dumb depends on your goals. If your goal is to quickly raise money, launch a copy-pasta project with little to no innovation, and then rug pull your community, an airdrop makes sense. Airdrops are effective at getting short-term attention and attracting opportunist capital.
However, there’s little to no evidence that airdrops are good for sustainable growth. One of their biggest issues is that they attract the wrong kind of user—those looking for short-term gains and uninterested in the long-term health or success of a project or its community.
Interestingly, this wasn’t always the case. The first big airdrop I’m aware of, Uniswap, came unannounced and caught everyone by surprise. It was likely a response to the vampire attack carried out by Sushiswap, and it seems to have done a reasonable job of rewarding Uniswap’s organic user base at the time. Airdrop farming wasn’t a thing then, and it’s unlikely that Uniswap was sybil attacked before the airdrop.
But, like all good things, you can only get away with this so many times. More airdrops happened, people caught on, teams began announcing their intentions to do airdrops, and airdrop farming quickly became an industry. Whatever effectiveness airdrops had quickly evaporated as sophisticated farmers figured out how to spin up many wallets and engage in wash transactions to appear like organic users—a classic example of a sybil attack.
Since then, we’ve been in an arms race—one that projects planning airdrops and attempting to defend against sybils are bound to lose. Defenders have adopted sophisticated collusion resistance heuristics and other measures to prevent sybil attacks, but the attackers are always two steps ahead. The battle is asymmetric, and the defenders will never keep up with the sophistication of attackers, who have an advantage. As Vitalik Buterin and other intelligent people have been saying for the better part of a decade, any task measured as part of an airdrop has long been doable using a combination of scripts, AI tools, ingenuity, and plain old hard work.
It’s a perfect example of Goodhart’s Law at work: the moment something becomes a metric, it loses all meaning. Attempting to measure organic engagement with a protocol as part of running an airdrop lost all meaning a long time ago. All airdrop measurement metrics are gameable—always have been, always will be. It’s a war the defenders simply can’t win. When there’s money to be made—and there’s an ungodly amount of money on the line with airdrops these days—and when there’s no good “proof of unique human” tool, airdrops will always be attacked with great sophistication and gusto.
In short, airdrops are dumb because, while they may succeed in getting some coins and value into the hands of real, organic community members, they end up putting a lot more coins into the hands of opportunistic airdrop farmers—the precise people you don’t want to reward. In this respect, airdrops are totally counterproductive. The sort of “community” that they tend to foster is inauthentic, opportunist, transactional, and short-sighted. This happens at the expense of actual, organic community invested in the long-term health and success of a protocol.
Thing #3: A Modest Proposal 🫶
"There are no shortcuts to any place worth going." - Beverly Sills
Creating a sustainable, thriving community is a marathon, not a sprint. Airdrops are like the diet pills of the blockchain world: they promise quick results but often lead to long-term disappointment.
Think of your health. There are no shortcuts to true well-being; it requires consistent effort and dedication. People often look for easy fixes like diet pills, which might show temporary results but ultimately fail to deliver lasting health. Airdrops are similar: they might generate short-term buzz but don’t foster long-term engagement or growth.
Years ago, I wrote extensively about building a robust, sustainable community. This involves significant time and effort, with no easy shortcuts. It’s essential for community members to feel economically enfranchised and that they have agency in governance. While airdrops have never been part of my strategy, getting tokens into the hands of your community is crucial, especially amidst regulatory challenges.
One promising solution is proof of unique human. If we had a reliable, trustworthy, privacy-preserving protocol to verify that each wallet address was controlled by a real human, it would be revolutionary. Despite many attempts to create such a system, I’m convinced it’s not possible to achieve this in a fair, scalable, decentralized manner. The problem is riddled with trade-offs. Manual identification is centralized and unscalable, while tools like pseudonym parties or POAPs are fairer but still not scalable.
The alternative is proof of work: decentralized, scalable, but not entirely fair. The core of the Spacemesh design is to identify a widely endowed, scarce resource, limit economies of scale, and allow earning coins in a permissionless fashion. This approach has worked to some extent, but economies of scale give whales an advantage, undermining fairness. This seems to be an unavoidable law of nature.
Despite its flaws, proof of work remains the best tool for widely distributing coins in exchange for valuable work in a reasonably equitable and decentralized way. Unlike alternatives, proof of work is credibly neutral. We haven’t found a better method. Airdrop farming is essentially proof of work with extra steps, and proof of work is more straightforward and regulatory-friendly.
When designing your next project or protocol, consider integrating proof of work. It’s a more sustainable and effective method than airdrops, which are a short-term fix at best. The blockchain world would benefit from fewer airdrops and more proof of work.