Retroactive Airdrops: Exploring the Mechanics and Funding Sources
During retroactive airdrops, cryptocurrency projects disburse to users substantially more funds than what was initially spent on transactions. This phenomenon prompts many to ask: where does the reward money come from?
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In this article, we'll scrutinize the statistics of past retroactive airdrops and explain why these activities can't be classified as Ponzi schemes.
Retroactive Airdrop Statistics
Between 2021 and 2023, numerous retroactive airdrops were initiated and executed, but only a handful turned out to be profitable:
● dYdX. Users who spent $200 received tokens worth approximately $9,000 if they sold their reward on the first day of trading. Therefore, the reward-to-risk ratio (RR) here is 45:1;
● Arbitrum. The RR for this airdrop is 50:1;
● Optimism. The RR in this scenario is 12:1;
● Blur. The RR for this airdrop is 50:1.
In most cases, the platform that launches the retroactive airdrop operates on a distinct blockchain, typically utilizing L2 solutions for Ethereum. Less frequently, rewards are distributed by specific dApps, NFT marketplaces, or DEXs.
Where Do the Funds for Retroactive Airdrops Originate?
The following entities and resources typically contribute to the substantial rewards distributed during retroactive airdrops:
● Private, strategic, and seed investors of the project. If a cryptocurrency startup has managed to raise upwards of $100 million, these funds will be deployed for marketing efforts, enhancing the token's liquidity, and securing a quality market maker, among other things.
● Fees earned from various users engaging with the platform.
● Retail investors who purchase the newly minted token on the open market post-listing.
From this, we can deduce that expenditures in a cryptocurrency project are typically static, remaining steady over a long duration, while profits are dynamic and continuously escalating.
For instance, prior to its mainnet launch, Arbitrum's Total Value Locked (TVL) was nearing the $2 billion mark. Furthermore, the trading volume of the ARB token on the inaugural day was approximately $3 billion. Given that the volume of trading is shaped by the proportionate interactions of buyers and sellers, we can note that on the first day, roughly $1.5 billion was spent on purchasing ARB, while the retroactive airdrop disbursed $1.7 billion. If we factor in all the fees that Arbitrum accumulated over two years, it's evident that the firm's profits significantly outweigh the retroactive airdrop expenditure.
Is a Retroactive Airdrop a Ponzi Scheme?
Retroactive airdrops distribute rewards in the form of the project's tokens, not stablecoins or fiat currency. Therefore, the asset's price is dictated by the number of users who invest in it post-listing.
The more a project invests in its marketing and promotion, the more people are likely to purchase the coin on exchanges. In such a scenario, early adopters receive a substantial reward volume. Meanwhile, other users will only profit if the token is deflationary and consistently appreciates over the long term.
So, while retroactive airdrops are not Ponzi schemes or pyramid structures, they could potentially manifest as a financial bubble with respect to the retroactive airdrop process itself.
Disclaimer: A certain portion of cryptocurrency projects could potentially be fraudulent, so it's crucial to conduct thorough due diligence on the project, diversify risks, and avoid exceeding your risk tolerance before initiating any activity.
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