Airdrops: Creating Wealth Overnight
Diving into airdrops, how to identify them and what you might be able to make.
Intro to Airdrops
Although the first airdrop was technically in 2014 with Auroracoin, the concept was popularized by Uniswap when they airdropped approximately $2.8B in total value in 2020. During an airdrop, tokens are directly transferred, or "dropped," into participants' digital wallets. This incentivizes existing users to engage more deeply with the platform and potentially attracts new participants intrigued by the prospect of acquiring tokens simply by becoming part of a growing ecosystem.
The role of airdrops in the crypto ecosystem has evolved over time, serving different objectives. Initially, airdrops were primarily used to reward early adopters and distribute tokens in a way that decentralized the ownership of the protocol. These early users essentially became the "shareholders" of the protocol, reinforcing its decentralized nature. However, the landscape has shifted, and new use cases for airdrops have come to light.
Nowadays, the buzz generated by highly anticipated airdrops can attract new users and significantly increase a number of metrics like, total value locked (TVL), for a given protocol or blockchain. This has led to a subtle change in focus—from purely decentralizing the protocol to using airdrops as a potent marketing tool to bring more users onto a platform. Though this isn't universally true for all protocols, it is becoming a prevalent approach. The increased awareness of the airdrop concept also plays a part; users are now more proactive in seeking out such opportunities, adding another layer of strategy to this tool's application.
Impact on Ecosystems and Protocols
Airdrops can have a profound impact on the ecosystems and protocols they are associated with, as demonstrated by recent examples. Take the case of the Arbitrum (ARB) airdrop, for instance. Although the 16 different criteria for receiving this airdrop were undisclosed until the event went live, it created substantial anticipation. Many users had speculated that transacting on the network would be a criterion, largely based on the precedent set by Optimism (OP), another Layer 2 network. This speculation alone seemed to have a dramatic effect on user engagement. On January 1, 2023, ARB's total active users numbered around 41,000. By the day of the snapshot on February 6th—also undisclosed in advance—that number had grown to 56,000. On the day of the airdrop, active users skyrocketed to 237,000.
While it's important to note that these numbers are not entirely foolproof—some may attempt to "sybil" an airdrop by creating multiple fake identities to increase their allocation—the statistics are telling. Even when factoring in potential sybil attacks and the protocol's maturity over the last year, the airdrop significantly boosted daily active users, TVL, transaction count, and the stablecoin market cap.
In another instance, EigenLayer, a protocol built on Ethereum, has been garnering attention for its potential to introduce an airdrop. This protocol aims to enhance cryptoeconomic security by enabling the restaking of Ethereum, attracting users to its innovative approach. Users deposit liquid staking tokens (LSTs) like stETH, rETH, or cbETH, and receive the normal ETH staking APY and additional “Restaked Points.” These points are what many speculate to be a criterion for a future airdrop.
At the moment, EigenLayer boasts a TVL of 225M staked ETH tokens from over 7,800 users. Interestingly, users are taking on additional smart contract risks for returns they could get without depositing into EigenLayer, driven by the anticipation of an airdrop. This demonstrates the powerful magnetic effect airdrops can have on user engagement and participation within a blockchain protocol or ecosystem.
How Can You Identify Airdrop Farming Activities?
As we previously touched upon the impact of farming activities on protocols like Arbitrum, it's worth extending that analysis to currently active scenarios to understand how farming shapes the ecosystem. Protocols like zkSync, LayerZero, Linea, Scroll, and Starknet are particularly ripe for farming activities at the moment, among many others. To identify such activities, key metrics like trading volume, daily transactions, and the number of active and new wallets provide invaluable insights.
Take the cases of LayerZero and zkSync as illustrative examples. LayerZero has particularly notable farming activities centered around Stargate, its first bridge. At the end of August, this bridge saw an average of 46,000 transactions in a 24-hour period. In comparison, the zkSync Era Bridge registers about 16,000 daily transactions, followed by Hop with just 1,800. The differences become even starker when examining monthly trading volume: Stargate boasts an impressive $2.297 billion, while the zkSync Era and Hop lag considerably behind with $987 million and $87 million, respectively. Now towards the beginning of October, farming activities have shifted as many are beginning to think the snapshot for the LayerZero airdrop was taken. As a result, zkSync has grown to more volume than LayerZero in the last 30 days.
Focusing on zkSync’s performance relative to one of their competitors, Arbitrum, the data provides a window into what seems to be prevalent farming activity on zkSync.
zkSync, as of October 3, boasts 706,231 daily transactions and 201,033 daily active addresses. Despite these impressive figures, its TVL sits at $120 million. Arbitrum, on the other hand, features a TVL of $1.7 billion, more than 12 times larger than that of zkSync. However, Arbitrum's transaction numbers and daily active addresses are lower: 612,368 transactions and 119,941 daily active addresses.
These data points allow for intriguing conclusions, particularly about farming activities. zkSync has a significantly higher number of both daily transactions and active addresses than Arbitrum. Yet, its TVL is comparatively smaller. Given transactions on each network cost relatively the same, one may assume the higher number of transactions on zkSync could be airdrop related.
The overall strategy of identifying airdrops focuses on identifying ecosystems with an increasing number of transactions that are interacting with various smart contracts and transacting between wallets rather than accumulating value within them. The aim of this high-volume, low-value transaction approach is presumably to maximize the chances of receiving more substantial airdrops.
This landscape shows how different protocols might attract different kinds of activities. While Arbitrum seems to be a hub for larger, more substantial transactions, zkSync appears to be a playground for farmers seeking to maximize transaction numbers and interactions. Both have their place in the ecosystem but serve noticeably different user behaviors and strategies currently.
These analyses underline how farming activities can significantly influence user engagement and transaction volumes in a given protocol. By keeping an eye on such metrics, one can glean a better understanding of the dynamic shifts and trends within the ever-evolving blockchain and crypto landscape.
What Can Someone Expect to Make from an Airdrop?
The financial impact of airdrops on individual users can be substantial, sometimes exceeding gains of $100,000 USD for those who meet all the criteria. This has led many to adopt farming airdrops as a full-time strategy within the crypto landscape. While the results can vary based on several factors such as the individual protocol, timing, and the specific criteria for participation, the high returns have been sufficiently compelling to attract dedicated focus. To illustrate, we consider the graphic below that outlines some of the most popular airdrops and the potential earnings a user could have accrued from a single wallet, had they met all the airdrop conditions.
As shown above, the dYdX airdrop for some users could have been over $250,000. Even smaller airdrops like Optimism and Ethereum Name Service could have provided users with over $75,000. These past successes and potential for significant gains continue to make airdrops an integral and ever-evolving facet of the broader cryptocurrency and blockchain ecosystem.
Where Do Airdrops Go from Here?
As mentioned, the landscape of farming airdrops has evolved to such an extent that some users are engaging in it as a professional endeavor. In response, protocols are exploring novel anti-Sybil methods to discern and potentially filter out these professional farmers. One such approach is the introduction of the Galxe Passport, which rewards users for disclosing more data through Know Your Customer (KYC) processes. While this method helps combat bot activity and makes farming more challenging, it has also spawned a black market for KYC information where users can buy identifications to get around any challenges.
The NFT trading platform Blur has taken a different track. It was the first to implement a point system for airdrops, allowing users to accumulate points via activities such as buying, selling, listing, or bidding on NFTs. This strategic move paid off handsomely, garnering Blur a dominant 65% share of the market volume. The success didn't go unnoticed; the point system is now finding adoption in other protocols as well.
We're now observing the emergence of airdrop systems where users farm points over an extended period based on various criteria. These can range from the duration of use and referrals from other users, to trading volume. Upon protocol launch, these accumulated points are then converted and distributed as airdrops. Notable examples of such point-based systems include Eigenlayer on Ethereum, MarginFi on Solana, and Friendtech on Base.
In summary, the airdrop landscape is undergoing dynamic changes as it balances incentivization with the need for fairness and anti-exploitation measures. These evolving strategies—from KYC-based rewards to point systems—demonstrate the crypto community's ingenuity in adapting to new challenges while maintaining user engagement.
How to Farm
Having covered the what, why, and where of airdrops, the question now is, how can you identify potential airdrop candidates yourself? A plethora of resources exist for this purpose. For the average user, Crypto Twitter serves as an accessible gateway; countless accounts offer step-by-step tutorials and tips on farming opportunities. Listening to interviews or podcasts featuring the project founders can also provide invaluable insights into potential airdrops.
Financial indicators can offer additional clues. For instance, if a project has secured substantial funding during a seed round, there's a good chance that its airdrop could be lucrative, making it a worthwhile farming target.
For the more technically savvy, tracking wallets with a proven history of successful airdrops can be extremely beneficial. These wallets are often well-connected within the crypto ecosystem and offer insights into promising farming activities. Monitoring key metrics such as transaction volume, active addresses, and TVL can also be highly revealing, as we've seen in our earlier case studies.
Specialized teams have also emerged to automate the process, offering various solutions to streamline and optimize the experience. Two prominent approaches stand out. First, some teams have developed bots that individual users can utilize to automate their farming activities. Second, there are teams that aggregate funds through Non-Fungible Tokens (NFTs) to farm airdrops on behalf of the token holders.
For those interested in outsourcing the intricacies of airdrop farming, there are specific projects worth exploring. One such project is Lootbot, which operates via the Telegram messaging platform, allowing users to automate their airdrop farming. Another interesting offering is ZKitty NFTs, where the treasury for the NFT holder carries out the farming activities.
These automated solutions reflect the evolving sophistication of the airdrop farming landscape. By offering options to simplify the process, they make the practice more accessible while potentially optimizing returns, further democratizing the benefits of blockchain ecosystems.
LootBot
LootBot is a Telegram-based service designed to automate various airdrop farming activities, including tasks like bridging, swapping, NFT minting, liquidity providing (LPing), and deploying smart contracts. The platform offers two pricing tiers: a "Freemium" option that allows up to 15 transactions without direct control over the wallet's private keys, and a "Premium" plan costing $30 per month per wallet, providing full control over the wallet's private keys. Discounts are available through referral codes, longer plan durations, or by holding at least 1,000 LOOT tokens. Users can start with a minimum deposit of 0.06 ETH and can create up to 10 wallets for farming activities. An update should soon bring unlimited wallets creation for premium users.
Despite concerns about sybil attacks, LootBot claims to mitigate this risk through continually randomized strategies and isolated wallet interactions. The bot is compatible with various blockchain protocols like zkSync and Linea, each hosting several services like SyncSwap, Orbiter Finance, and others.
The platform's native $LOOT token serves multiple purposes. Transactions involving LOOT incur a 5% tax, which is distributed between liquidity provision (1%), revenue sharing (2%), and team reserves (2%). To participate in revenue sharing, users need to hold a minimum of 1,000 LOOT or its equivalent 1xLOOT (which equals 10,000 LOOT). Interestingly, xLOOT is an ERC-721 NFT that provides users with added benefits like higher portions of airdropped tokens and access to an exclusive chat. It's worth noting that as of today, LootBot has accumulated over $110,000 in subscription fees.
Overall, LootBot exemplifies how automation and tokenomics are increasingly shaping the landscape of airdrop farming, offering both convenience and strategic advantages to users while introducing complex dynamics around issues like sybil attacks and economic incentives.
Zkitty
Zkitty is an innovative protocol for automated airdrop farming that combines the power of Telegram bots with the allure of cute kitten-themed NFTs. Users can engage in two different approaches: "stake and forget" via Zkitty NFTs or utilize the auto-kitty-bot for more customized farming.
The NFTs provide a unique staking system: By buying and staking a Zkitty NFT in their Telegram bot, users accumulate staking points over time, which determine the proportion of airdrop rewards they'll receive. Eighty percent of these rewards go to the NFT holders, and the remaining 20% to the Zkitty team. The team member behind the airdrop strategies is known as @DefiTrader_ on Twitter, making this approach ideal for users comfortable with third-party management of their funds.
Alternatively, users can take a more hands-on approach with the auto-kitty-bot. The bot offers both pre-set and customizable configurations, along with a dashboard displaying various metrics like transaction volume, total transactions, wallet age and more. The bot service costs $20.00 per month but offers a 25% discount for each farming wallet if the user holds 1000 $ZKITTY tokens ($51 USD).
In terms of Sybil detection, both approaches offer mitigations. The NFT approach relies on randomized transactions and fresh wallets, while the auto-kitty-bot requires occasional user check-ins to initiate transactions. These strategies are designed to lower the risk of Sybil detection, although there's no absolute guarantee against it.
Ownership and governance aren't overlooked; holding a Zkitty NFT entitles users to voting rights in the Zkitty DAO. ZKitty NFT users receive 1 vote in the ZKitty DAO. This allows users to share protocol ownership and vote on proposals like which blockchains to farm, tokenomic revisions, NFT roadmap decisions and more. The DAO is exploring additional benefits for NFT holders with a venture capital investment of $50K made in Clip Finance. This is certainly an interesting move, but may also introduce additional risk taken on by the team and DAO.
The $ZKITTY token plays a multi-faceted role. It offers subscription discounts, and upon its launch, 50% of its supply was reserved for Zkitty NFT holders. The rest was allocated for liquidity, marketing, CEX listings, and the team. Additionally, the token is used for revenue sharing, derived from a 1.75% tax on $ZKITTY transactions, 75% of auto-kitty-bot subscription fees, and 95% of NFT royalties, which will be distributed to $xZKITTY stakers.
Zkitty demonstrates the evolving complexity of airdrop farming, illustrating how NFTs, bots, and governance tokens can come together to create an ecosystem offering both financial opportunities and community engagement.
*Blockstar is in no way endorsing LootBot or Zkitty, but rather illustrating how the airdrop markets are evolving.*
Concluding Thoughts
Airdrops have transformed from mere tools for decentralizing protocol ownership to sophisticated marketing instruments that can dramatically boost user engagement and various metrics like Total Value Locked (TVL). They've been so impactful that entire ecosystems, such as Arbitrum and EigenLayer, have witnessed significant surges in activity and value when airdrops are anticipated or executed. Some users are even making a professional endeavor out of "farming" airdrops, causing protocols to innovate with anti-Sybil measures and new point-based systems to balance fairness and incentive. These trends are buttressed by sophisticated automated solutions like Lootbot and Zkitty, which offer users ways to optimize their airdrop gains. Whether viewed as an opportunity for individual profit, a tactic for user acquisition, or a complex game of strategy and anticipation, airdrops represent a multifaceted phenomenon that continues to shape the blockchain and crypto ecosystem in unpredictable yet fascinating ways.
Written by: @NPC_68, and @Ryguy_LikesETH