The Challenge With Modern User Incentive Mechanisms

Airdrops are harmful to the longterm growth of crypto projects

Every crypto project reserves tokens for their community, delivered in the form of airdrops, which are big lump sums of tokens. Airdrops are often used to reward supporters, incentivize specific business objectives, increase network effect (through partnerships), etc... However, airdrops as delivery mechanisms are deeply flawed in design and can have destructive consequences for projects.

Massive, predictable sell pressure

Users that are offered airdrops will claim and sell their tokens, resulting in massive, up front sell pressure that harms the perception of the token (this is most evident during TGE airdrops). The decision to sell is usually an obvious one when selling is the clear dominant strategy.

Hurts supporters/holders

Users that want to support the project long term are not incentivized to hold airdropped tokens because everyone else sells. If they do hold, their perception of the project they support is tarnished.

Leads to product stagnation

Teams have to spend time developing utility compelling enough to offset the sell pressure caused from airdrops, which usually does not align with the overall benefit of their core product experience

Causes steep drop-off in user engagement

Most users tend to quit engaging with the project after the airdrop. Drop off rate is HUGE across the board since the project is no longer exciting, its on to the next project's airdrop to focus attention on.

Increases token dilution while decreasing remaining tokens owned

A team's tokens are the most precious resource they have and every airdrop limits their potential to leverage those tokens in the future, while introducing more available tokens (supply) into the market (resulting in a lower token price)