The role of airdrops in the cryptocurrency market

In the recent cryptocurrency cycle, airdrop tokens have become the focus of many investors. Airdrop is a way to distribute new tokens for free to existing coin holders or a specific user group. Many projects use airdrops to promote their tokens and platforms, but investors need to judge whether these airdropped tokens are truly worth holding.

To explore this issue, I collected some data (the data is as of this morning, so there may be some lag), but it is enough to help us understand the general trend. I only counted the top 500 tokens. Here are the main findings:

Key findings

  1. Price performance:

    • Of the 31 airdropped tokens, 23 are currently priced below their first-day prices, with some of the declines being severe.

    • Only four airdropped tokens have outperformed Bitcoin since their first day of issuance.

    • Of these four tokens that outperformed Bitcoin, only one was launched in 2024.

  2. Memecoin performance:

    • Two meme-related airdrop coins (BONK and DEGEN) were huge successes.

    • Although TIA is not favored at present, its price is still much higher than the issue price and has outperformed Bitcoin.

  3. Investment Strategy:

    • It is almost always the right choice to exchange airdropped coins for USD or Bitcoin on the day of issuance. While you may occasionally catch a rally after a token is listed, in general, the longer you hold onto airdropped coins, the worse they will perform.

Risks and opportunities of holding airdrop coins

Although there are always exceptions, the chances of you holding the right airdrop coin are slim, even more so than holding Bitcoin. If you are really bullish on a project's long-term prospects, there are usually more chances of buying below the offering price. The next bear market may make some of these tokens better investments.

Airdrops are not the only reason for the price drop of these project tokens. Many times, the project parties will work with market makers to set the token valuation too high, and users ruthlessly sell airdropped coins as a feedback mechanism to quickly discover that the valuation of the project party is not reasonable.

Fully Diluted Valuation (FDV) and Liquidity Mining

Many people realized during this cycle that fully diluted valuation (FDV) does matter. Holding airdropped coins means you believe that there is enough demand for the token to support its price increase in the event of a large unlock and investor sell-off. Liquidity miners will always sell regardless of price because they just want to take the yield and leave. In theory, the token price should be able to recover from these speculators' exits, but most of the time, the data shows that they do not do so. Of course, some of these tokens still have time to turn around.

Airdrop Design and Future Outlook

People often complain that many airdrops are poorly designed, but based on this data, it seems difficult to design a community airdrop that is not detrimental to the token in the short and medium term. Two unexpected memecoin airdrops (without a points program) achieved the highest returns at very low launch prices. Both airdropped coins were intended to help grow different ecosystems (Solana and Farcaster).

In the past, we have seen many examples of memecoin airdrops that instantly went to zero, so we cannot simply assume that memecoin airdrops will definitely perform better. Surprise plus undervaluation may be a better conclusion.

Summary and suggestions

Points programs, as a common feature of web2, are likely to continue to exist as they can help create more interesting, positive, and sticky user experiences. However, airdrops may not continue in the form we have seen. Based on this data, projects should consider their airdrop format very carefully, or even consider whether they should airdrop at all.

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