How Effective Are Crypto Airdrops? A Deep Dive by Bitgoro Media
After consulting few VCs in our network, we've prepared this guide to help you understand design effective Airdrop campaigns.
A classic story in Silicon Valley startup lore is Paypal’s decision to pay people $10 to use their product. The reasoning was that if you could pay people to join, eventually the network value would be sufficiently high that new people would join for free, and you could stop paying. It certainly seemed to work, as PayPal was able to stop paying and continue growing, thereby bootstrapping its network effects.
In the crypto world, we have adopted and extended this approach with airdrops, paying people not just to join but typically to use our products for some period. Airdrops have become a multifaceted tool used to reward early users, decentralize protocol governance, and, frankly, to market something new. However, the effectiveness of airdrops can vary greatly depending on how they are structured and executed.
Understanding the Quasi-Hyperbolic Discounting Model
The quasi-hyperbolic discounting model provides a mathematical framework to explore how individuals make choices involving trade-offs between rewards at different times. Its application is particularly relevant in areas where impulsivity and inconsistency over time significantly influence decision-making, such as financial decisions and health-related behaviors.
The model is driven by two population-specific parameters: present bias and the discount factor.
Present Bias (β)
This parameter measures the tendency of individuals to prioritize immediate rewards over those that are further away disproportionately. It varies between 0 and 1, where a value of 1 indicates no present bias, reflecting a balanced, time-consistent evaluation of future rewards. As values approach 0, they signify an increasingly strong present bias, indicating a heightened preference for immediate rewards.
For instance, given the choice between $50 today or $100 in a year, a person with a high present bias (closer to 0) will prefer the $50 immediately rather than waiting for the larger sum.
Discount Factor (δ)
This parameter describes the rate at which the value of future rewards diminishes as the time until their realization increases, accounting for the natural decline in their perceived value with delay. For generalized populations, studies show the discount rate is usually around 0.9. However, this value is often substantially lower among groups with gambling tendencies.
Using these parameters, we can express the utility (U) of receiving a reward (x) at time (t) through the following formula:
U(x)=U(t)⋅β⋅δtU(x) = U(t) \cdot β \cdot δ^tU(x)=U(t)⋅β⋅δt
Case Studies: Airdrop Effectiveness
Last year, Pantera Research Lab conducted a study to quantify the behavioral tendencies of crypto users. They found that the representative sample of crypto users exhibits a present bias just above 0.4 and a notably low discount factor. This suggests a tendency towards impatience and a preference for immediate gratification over future gains.
Drift Protocol
Drift, a decentralized exchange on Solana, implemented a gradual release mechanism where users' rewards doubled if they waited six hours to claim. About 85% of recipients waited to claim to receive their full allocation, demonstrating the effectiveness of incorporating behavioral insights into airdrop strategies.
LooksRare
Airdrop Cost: $268 million
Commissions Earned: $203 million
CAC: $2,151
CLV: $1,631
CAC/CLV Ratio: 1.32
X2Y2
Airdrop Cost: $48 million
Platform Commissions: $1.7 million
CAC: $1,140
CLV: $40
CAC/CLV Ratio: 28.5
Blur
Airdrop Cost: $342 million
CAC: $2,750
Trading Volume: $5 billion
CAC/CLV Ratio: ∞
If Blur charged fees:
1% Commission: CAC/CLV = 6.13
2.5% Commission: CAC/CLV = 2.45
ApeCoin (Most Expensive Airdrop)
Airdrop Cost: $8.596 billion
CAC: $570k
CLV: $6,331
Royalties Earned: $95 million
CAC/CLV Ratio: 90.1
Addressing User Retention and Multi-Accounts
Studies show that user retention from airdrops averages 10% lower after 30 days, often dropping almost to zero. To counteract this, some projects implement vesting schedules or gradual releases to keep users engaged over a longer period. For example, the Drift Protocol's strategy of doubling rewards for those who wait proved effective in reducing immediate sell-offs and promoting token stability.
Moreover, multi-accounts and farms pose significant challenges, with some projects reporting up to 33% of participants being fake. Effective filtration methods are crucial in maintaining the integrity of airdrop campaigns.
The Role of Behavioral Economics in Airdrops
Behavioral economics, particularly the quasi-hyperbolic discounting model, provides insights into how to structure airdrops more effectively. This model helps us understand that crypto users often exhibit high present bias and low discount factors, which means they prefer immediate rewards over long-term benefits.
Research Insights
A recent study by Pantera Research Lab revealed that crypto users show a high present bias (~0.4) and a notably low discount factor, indicating a tendency toward impatience and immediate gratification. This behavior is influenced by the natural periodicity of crypto markets and the speculative nature of many crypto applications.
Practical Application: Drift Protocol
Drift Protocol's implementation of a gradual release mechanism for their airdrop rewards showed that understanding user behavior can lead to more effective strategies. By offering doubled rewards for users who waited six hours, they managed to retain 85% of their recipients, reducing the typical sell-off seen at the start of airdrops.
Conclusion
Crypto airdrops can be a powerful tool for user acquisition and engagement, but their success depends heavily on strategic planning and understanding user behavior. The quasi-hyperbolic discounting model provides valuable insights into designing effective airdrop strategies that account for user impatience and preferences for immediate rewards.
By leveraging these insights and learning from successful case studies, projects can optimize their airdrop campaigns to achieve desired outcomes, whether that's increased user engagement, token stability, or long-term growth.
At BitGoro Media, we've been at the forefront of the crypto marketing space for over four years, working with 80+ projects to help them build and engage their communities. Our expertise in strategic planning and user behavior analysis can help you design effective airdrop campaigns that deliver real results. Get in touch with us today to learn how we can support your project's growth and success.