What are retrodrops?
A retrodrop is a retroactive #airdrop distributed in the native token of a project. It is one of the methods used to #reward users for engaging with a crypto application, testing it, or participating in other project-related activities during the early stages of its development.
One of the pioneering retrodrops was conducted by the decentralized exchange (DEX) Uniswap in September 2020, distributing 400 UNI tokens to every blockchain address that had ever interacted with the platform's smart contracts.
Tokens of popular Layer 2 solutions such as #optimism and #arbitrum were also distributed through a retrospective reward mechanism, acknowledging past actions deemed valuable by the projects.
For what actions are retrodrops allocated?
In most cases, #retrodrops are awarded based on actions that result in users' financial expenditures over a specific period of time.
These criteria are referred to as multipliers, and some of the most popular ones are outlined below:
Deposit into the network or application: The more assets in circulation, the better for the entire ecosystem. This includes valuable liquidity related to interactions with specific applications, such as asset locking for staking, farming, lending, and liquidity pools.Network IDs and domains: Address identification and giving them a personalized touch through domain registration or obtaining special IDs.Voting in DAOs (Decentralized Autonomous Organizations): A fundamentally important activity where users retain their tokens in their balance, abstaining from selling them, and use them to vote on innovations within the ecosystem, including proposing their own development ideas.Creation and deployment of smart contracts: Encouraging experimentation and new developments within the ecosystem is always welcomed. Incentivizing and attracting developers is one of the most challenging tasks.Creation of multi-signature addresses: It is assumed that professional teams, funds, and investor groups engage in such operations. These participants are considered valuable contributors to the ecosystem.Transaction volume in dollar equivalent: The more transactions that occur in the network in terms of dollars, the better for everyone in terms of statistics and other network metrics.Number of transactions: A higher number of transactions contribute to a larger cumulative volume of paid fees. This serves as a source of income for validators and individual projects in the network.Time spent using the network or application: The longer and more frequently a user engages with the ecosystem, the more valuable they become for the project.Interaction with a large number of applications: Projects value researchers and engaged users. For instance, Optimism valued and rewarded interaction with applications even outside its own network.Donations: Projects incentivize voluntary contributions during the early stages of development when teams turn to community donations instead of venture rounds.
Who are drop hunters, and what is multi-accounting?
Drop hunters are individuals who actively seek out airdrops. In the context of retrodrops, these users try to anticipate which projects will reward their active community in the future through the distribution of native tokens.
This category of cryptocurrency market participants anticipates that the active use of specific applications in ecosystems such as Base, Linea, zkSync, and Starknet will correspond to potential multipliers for retrodrops.
To maximize profits, users resort to creating numerous blockchain addresses, known as sybil accounts. This activity is referred to as multi-accounting. The essence of this approach lies in managing a network of seemingly unrelated addresses by one person or a group of individuals, all of which may qualify for airdrops in the future. For example, in 2023, an unknown individual created 21,877 addresses on the Ethereum second-layer zkSync network.
Teams responsible for airdrop distributions view the practice of multi-accounting as malicious. In efforts to combat sybil accounts, projects analyze network activity and deny rewards to such users. For instance, Optimism developers excluded approximately 17,000 ETH addresses from the retrodrop list for the OP token as part of their measures against multi-accounting.
What strategies do drop hunters use?
Prominent retrodrops from Uniswap, Optimism, and Arbitrum have shown that the pursuit of rewards has become a distinct form of professional activity in the cryptocurrency market, aimed at generating profits. Similar to trading and investments, there are numerous strategies in retrohunting. The following trends can be identified in retrohunting:
Use of specialized software: This approach, referred to as airdrop farming in the Binance report, involves the automatic execution of actions in blockchain networks and specific decentralized applications to increase the chances of receiving an airdrop. Such software includes installable applications, Web2-based resources, and even Telegram bots. This approach enables the creation of tens, hundreds, or even thousands of addresses that potentially meet the criteria for retrodrops. For example, two market participants consolidated ARB tokens worth $3.3 million on two addresses, obtained from 1496 wallets—a quantity that is challenging to create manually.Manual airdrop farming strategy: This approach is limited by human or group resources since creating hundreds of addresses would require substantial time and effort. However, this strategy is considered relatively secure, as detecting such accounts can be challenging.Combined strategy: This method aims to diversify risks. Hunters allocate their accounts to perform actions using both manual and automatic strategies simultaneously. This potentially reduces risks but, at the same time, increases the potential return on investment due to the quantity of accounts and time saved.
Conclusion
Crypto projects can conduct retrodrops, retrospectively distributing their tokens among users who have interacted with their platforms or networks.Retrodrops serve as one of the ways to reward users for their contributions to project development, as well as for their loyalty and support.There are various criteria by which projects select recipients for retrodrops, such as deposit volumes, transaction counts, time spent using the network or application, participation in voting, and more.Different strategies are employed by retrodrop hunters to increase their chances of obtaining free tokens. Some of these strategies include using specialized software, creating multiple addresses, or combining different approaches.
We emphasize that retrodrops have become a significant aspect of the cryptocurrency market, stimulating innovation, engagement, and competition among projects and users.