What can crypto founders learn from Blur's token airdrop?

Original Title: What Crypto Founders Can Learn from Blur's Token Airdrop

Authors: Li Jin, Mason Nystrom, Tina Dai

Compiled by: Block unicorn

Since its public launch five months ago, Blur has become the leading NFT marketplace and trading platform in the industry, with a market share exceeding 40% by trading volume prior to the airdrop in February 2023. In a competitive landscape, defeating existing companies requires not only improvements in product and user experience but also complex incentives to guide and increase user engagement.

In recent years, the application of tokens in building networks has seen a plethora of creative ideas, including incentivizing participant growth or loyalty, capturing value, or providing various types of core utility for products. Common token strategies range from one-time retrospective airdrops to incentivize participation and reward early users (like Uniswap, ENS) to ongoing liquidity mining projects that reward users for performing certain actions (like LooksRare, Compound).

The study of Blur reveals a more sophisticated token distribution design that offers phased rewards to align with network growth. This analysis will include two parts: the first article will interpret Blur's token approach and provide advice for founders looking to leverage tokens to grow their networks. A future blog post will share data analysis quantifying the impact of the airdrop on the market and usage.

Background on the Blur Airdrop

The total supply of BLUR tokens is 3 billion, of which 360 million, or 12%, were airdropped and made claimable on February 14. As of February 20, 112K unique wallets had claimed the airdropped tokens, with 93% of the tokens being claimed. As of February 20, the token price was $1.21, with a total airdrop value exceeding $435 million, and the median airdrop was 298 tokens (worth $360).

Before the airdrop, Blur's token incentives had several phases, collectively referred to as "Season One," which mirrored the sequential manner of network growth. Importantly, during these phases, users did not receive airdropped tokens but instead received off-chain "care packages," which could be viewed on Blur's website, serving as points for future airdrop of BLUR tokens or mystery boxes.

The rewards of Season One had four phases

0 Airdrop: Rewarding social referrers to attract traders to join their platform (announced on May 4, 2022).

You earn points when you join, when you use an invitation, and when the people you invite use the invitation.

Blur's first phase airdrop was announced in May 2022 when the platform was still on a waitlist, rewarding users who actively referred others to use the platform. Notably, the calculation of these rewards incentivized not only invitations but also encouraged high-volume traders.

Airdrop Phase 1: Rewarding trading activity in the ecosystem (announced on October 19, 2022)

Blur's first airdrop coincided with the public launch of its NFT aggregator and marketplace. This airdrop rewarded users who had been active in Ethereum NFT trading over the past six months. To qualify for the airdrop, users needed to list an NFT on Blur within 14 days.

"Our goal is to make Blur a marketplace owned and benefited by the entire NFT community. Our first step is to airdrop care packages to everyone who has been continuously trading NFTs over the past six months."

Airdrop Phase 2: Rewarding addresses that established supply on the marketplace (announced on October 19, 2022)

Alongside the announcement of Airdrop 1, Blur also announced Airdrop 2 to reward individuals who listed NFTs on Blur before November. The second airdrop also rewarded traders who used Blur's new features, including their professional listing tools (e.g., listing NFTs at floor prices based on characteristics, sweeping floor price NFTs, etc.). Airdrop 2 further rewarded traders who frequently listed active collections and incentivized blue-chip NFT listings.

Notably, Blur also encouraged users to remain loyal to Blur rather than other NFT marketplaces:

"Loyalty does not affect how many care packages you receive in Airdrop 2, but it will affect your luck when you reveal them. When you list on other marketplaces, as long as you list on Blur at the same price or lower, it will not affect your loyalty score. You can use Blur's advanced listing tools to list NFTs across all NFT trading platforms at once!"

Airdrop Phase 3: Rewarding bids to stimulate demand (announced on December 14, 2022)

With a supply base priced lower than other markets, Blur announced that the focus of the third airdrop would be to build demand. Alongside the third airdrop, Blur launched their bidding contracts, allowing traders to bid on collections more effectively (e.g., gasless bidding).

Blur also encouraged traders to create the best bid-ask spreads possible, with better bidders receiving more rewards.

"In a collection, bids that take on the highest 'risk' earn the vast majority of points. For example, if the floor price is 1.01, there are 100 bids at 1, and you bid at 0.99, your bid won't earn many points because there are 100 buyers ahead of you, but if you bid at 1.01, you will earn more points because now you are taking on the 'risk'."

Crucially, while there were no longer incentives for listings during this period, Blur maintained the same loyalty promise: users who listed at the same or lower price on Blur would have better luck when opening their care packages (meaning they could receive more airdrops), helping to maintain Blur's lower prices compared to other markets.

Care Packages

Care packages come in four different rarities: common, rare, legendary, and mythic. The rarity of care packages is tied to users' loyalty scores to Blur, distinguishing behaviors such as listing common NFTs or blue-chip NFTs, with rarer packages earning more tokens.

On February 14, 2023—nearly a year after the initial airdrop announcement—Blur users could open their care packages to reveal the BLUR tokens inside. The top five wallets claimed over 2 million BLUR tokens each, with the median airdrop being 298 BLUR (valued at $360 as of February 20), and the average was 2,995 tokens (valued at $3,623).

To claim their airdrop, Blur users needed to tweet about the airdrop. Blur pre-filled the number of tokens claimed in the tweet (users could edit the tweet and claim the airdrop).

Key Lessons from the Blur Airdrop

Blur's innovative airdrop design offers several important lessons:

1. Sequential airdrops drive market growth

Blur's innovation lies in adopting a sequential airdrop model that builds the network in phases, aligning with new product releases.

This sequential airdrop of tokens has two key effects:

• Phased network building corresponds to the way supply is established first in the market, followed by demand.

• Maintains user engagement on Blur and introduces them to newly launched product features (like bidding contracts).

1. Uncertain rewards create greater motivation

Like most cryptocurrency projects, Blur decided to keep the specific details of the airdrop (care packages) under wraps before the launch, but crucially, they abstracted the details behind gamified and quantifiable care packages, providing users with short-term rewards during the transition period. Each subsequent airdrop was "more valuable than the next," creating motivation for continued participation as users did not know the true nominal value they would receive.

Comparing this approach to LooksRare's initial token distribution strategy, which functioned more like DeFi liquidity mining, where rewards were tied to specific market activities. LooksRare rewarded traders based on trading volume, meaning traders could reliably calculate how many tokens (and dollar value) they would receive based on their trading volume on any given day. This led to traders engaging in wash trading to earn LooksRare token rewards, resulting in almost no sustained organic activity (allegedly, 94% of LooksRare's historical trading volume was wash trading).

In studies comparing the effort people put into winning a certain reward versus uncertain rewards, researchers found that uncertainty generates greater motivation and effort. Blur's model closely reflects the four-step habit formation process proposed by author Nir Eyal: the trigger to start using the product, the action that satisfies the trigger, the variable reward for the action, and some type of investment that ultimately makes the product more valuable to the user.

Another related strategy is using care packages of different rarities to reward loyalty, promising that rarer care packages can earn more BLUR tokens. This gamifies uncertainty, creating motivation for users to obtain rarer care packages.

3. Incentivizing viral growth and social sharing

To stand out from the waitlist and join early testing, users needed to earn as many Blur points as possible. Blur gamified the viral coefficient (the number of new users generated by existing users) and rewarded users for referring more users. Influencers posted about it on Twitter, and users shared referral links in group chats, sparking a wave of invitations. Importantly, users who gained access to the beta could earn points for the first airdrop, while participants on the waitlist and beta users could receive an additional airdrop from Blur.

Blur also specifically encouraged sharing on Twitter, including a commitment to provide care packages to randomly selected users who retweeted announcements. Finally, opening "care packages" and claiming Blur's airdrop required tweeting, with the airdrop information pre-filled in the tweet. Although users could circumvent this and still receive the airdrop (e.g., by tweeting and deleting), this mechanism generated significant buzz on airdrop day, with thousands of tweets about the airdrop.

Throughout the process, Blur maintained a leaderboard for users ranked by points. This created gamified competition and social proof, showcasing the activities of other users.

4. Shifting liquidity to Blur

Blur's loyalty score—which determines the rarity of care package airdrops—depends on the extent to which traders maintain competitive exclusivity on Blur. Traders maximize their Blur loyalty scores by listing NFTs on Blur at prices lower than those on other markets. Conversely, listing NFTs at lower prices on other markets reduces users' loyalty scores.

This incentive led traders to list NFTs at lower prices on Blur, creating a supply moat for Blur and increasing its attractiveness to NFT buyers. During the bidding incentive period, bids closest to the floor price received the most rewards, further creating tight bid-ask spreads, making Blur's floor prices lower than those on other markets.

Notably, Blur's loyalty program will continue into Season Two as an incentive to keep traders loyal to the platform.

5. Ongoing incentives for new users

Unlike many airdrop projects targeting early adopters, Blur announced that it would continue to airdrop tokens to new users in Season Two and provide additional incentives to traders who list NFTs and bid on NFTs within thirty days after the airdrop.

On airdrop day, Blur also announced care packages for new users. To apply for care packages, users needed to browse animated slides showcasing Blur's features, purchase NFTs on the marketplace, and list on Blur. This was a strategically timed initiative, as Blur's website might see a surge of potential user traffic on airdrop day. Meeting these new users on airdrop day and incentivizing them to use Blur could be an effective customer acquisition strategy.

6. Iterative airdrop schemes

On airdrop day, Blur announced an incentive committee authorized to deploy 10% of the community token supply to further incentivize Blur's adoption. Once the budget is exhausted, the committee can also request more tokens through governance.

This committee allows Blur's airdrop program to continue iterating—avoiding user manipulation for maximizing airdrops—without the need for ongoing DAO approval. This is similar to a web2 strategy of continuously updating incentives to optimize network dynamics.

Suggestions for Improvement and Open Questions

In reflecting on the airdrop process, we identified several areas of opportunity for the future:

Focus on user retention

To further decentralize and retain users, one suggestion from Marc Boiron's Sufficient Decentralization Playbook is to evolve the incentive committee into a sub-DAO, similar to the Uniswap Foundation, which could be a sustainable way to maintain the vitality of incentives as the market evolves.

Future airdrops could benefit from using time-locked airdrop vesting schedules, where users who sell out are ineligible for the remaining portion of their allocated airdrop. Additionally, airdrops could depend on continued platform usage (e.g., a certain number of bids or listings per month) or governance participation.

Building a moat around demand and supply

Blur created a buyer-locking element by using bidding contracts, requiring users to deposit into Blur's bidding contracts to place bids. As of February 20, there was $128 million in deposits in the bidding contracts, representing potential bids.

Blur could further enhance the sustainability of its demand side by allowing users to earn from deposited capital; providing additional financial products for professional traders; or using other incentives to help lock in liquidity. As the NFT market war continues, creating a supply moat for the market will also be crucial for future defensibility.

Creating utility for tokens

Creating greater utility for tokens, making them a core part of the product experience, and building demand for the tokens could be the next focal area. This could be inspired by tokens like Binance's BNB, which offers discounted trading fees on the exchange; or SuperRare's RARE, which is required to curate independent storefronts on a platform called Spaces.

Finally, there is an existing question of whether the token will generate value. Since the token launch, users on Twitter have questioned how the value for Blur token holders accumulates, given that there is an equity company building and maintaining the frontend. Since Blur is the dominant (and only) application built on its protocol, this could lead to distorted incentives in driving value for the DAO versus the equity business, leaving an open question about whether or how the company makes credible commitments to the DAO.

Looking Ahead to the Next Iteration of User Incentive Token Mechanisms

Given the recent airdrop, the long-term effects of Blur's airdrop strategy will only become apparent over time. So far, over 75% of airdrop recipients have sold part of their airdrop. Early data on the effects of the airdrop is promising; however, Blur's bulk market share (based on bid sources) rose from 40% mid-airdrop to over 80% within days after the airdrop. As of February 20—one week after the airdrop—the top 1st, 3rd, and 5th recipients of the airdrop still held all of their airdrop, each with over 2 million tokens (worth over $2.4 million).

Undoubtedly, Blur's airdrop has opened new avenues for token applications in network growth. Ultimately, the goal of token incentives should be to improve core KPIs: long-term retention and stickiness. The ideal outcome of the token is that user ownership makes the product more successful than it would be without token ownership. Achieving this still requires building products that people want, gradually decentralizing, and customizing evolving plans for each product and protocol.