Recent research indicated that token airdrops in 2024 have seen a low success rate of only 11%. The research, conducted by Keyrock on 62 airdrops across 6 chains, found that only 8 had positive returns for investors. The 8 airdrops were also only on Ethereum and Solana, leaving ZkSync, Arbitrum, Blast, Starknet, and more lacking winners.
The research also highlighted that while airdrops give free tokens to encourage community engagement, most have quick sell-offs. The report noted that airdrops became popular in 2017. Many airdrops in 2024 are still struggling despite popularity due to market oversaturation, leading to more failures than successes.
Some tokens saw notable returns during the first days, while most plunged after significant market action. Most airdrops crashed within 15 days of their airdrops, while 88% dropped months after despite having good initial prices. Only airdrops that distributed more than 10% of their total supply performed well, while those that distributed less than 5% saw quicker sell-offs post-launch.
The research explained that the outcome for most airdrops shows that most users participating are only there for incentives. That also means that most users would probably initiate massive token sales, therefore not supporting the projects in the long term.
Distribution dynamics play a crucial role in airdrops
The research report indicated distribution dynamics as a key factor determining the success of airdrop projects. Keyrock noted that smaller airdrops recorded lower selling pressure but eventually had significant dumps in the following months. Larger airdrops saw better long-term performance despite having volatile price action immediately after launch. The results suggested that generosity encouraged long-term loyalty.
The community also plays a crucial role in distributing the airdrops, as per the research report. Community sentiment is, therefore, critical to the success of airdrop projects. Communities find larger distribution models fairer than smaller distribution models. The community also feels more involved in larger projects than smaller ones.
The report further highlighted that community sentiment on social media platforms like Discord and Telegram shows more dedication to a project. A more innovative and original project also creates positive sentiment and momentum across communities.
Inflated FDV acts as some projects’ failing point
Of the 62 airdrops analyzed by Keyrock, only 8 had positive returns after 90 days — 4 on Ethereum and 4 on Solana. Tokens that launched with high FDV suffered the biggest price drops. Success: Drift launched with only $56 million; failure: ZKLend has seen its value plummet by… pic.twitter.com/jQ8G7m7S5F
— Wu Blockchain (@WuBlockchain) October 4, 2024
The research described an inflated, fully diluted valuation (FDV) as what hurts most projects. The FDV represents a project’s total valuation based on its token’s initial price. If a project’s token stands at $0.1 and has a maximum supply of 1,000,000 tokens, its FDV is $100,000.
According to the report, a high FDV decreases liquidity and project growth, resulting in fast and steep price declines after the launch. Steep price declines are especially true for projects lacking liquidity to support the high FDV. The research evaluated 62 projects, with some having an FDV as low as $5.9 million and those with a very high FDV of about $19 billion.
Keyrock also explained that investors are more attracted to projects with growth opportunities. The research described smaller projects as offering investors the opportunity for ‘upward mobility,’ unlike larger projects. The report cited Robert Shiller, who said, “Irrational exuberance fades quickly when investors feel returns are capped.”
