Starting from Blur, exploring the actual impact of airdrops on the NFT market

Original Title: Beyond Hype: Understanding the Impact of Airdrops on NFT Marketplace Performance

Original Author: J.Hackworth

Compiled by: Qianwen, ChainCatcher

Introduction

The NFT market is constantly evolving. Over the past year, OpenSea has felt the pressure as its rising competitors gradually take away more market share. Weekly data shows that LooksRare, X2Y2, Sudoswap, and Blur have reduced OpenSea's NFT volume market share from 99% to 50-30%.

Weekly NFT marketplace platform market share

While OpenSea may be one of the favored companies in the web3 space, it lacks something that other competitors have: a token. This leaves a great opportunity for competitors in the market—offering free cash to users through token airdrops to steal customers. Although the above image may suggest that airdropping tokens to users has worked, on-chain data may lead to the opposite conclusion. While the trading volume of its competitors is increasing, OpenSea's active user market share has slightly declined.

Active user situation in the NFT market

We conducted an in-depth study of the airdrop data from LooksRare, X2Y2, and Blur to understand the effects of each airdrop in their respective markets. All analytical data can be viewed on the++Du++ ++ne Dashboard++.

How Valuable Are NFT Customers?

Before delving into the airdrop analysis, it is first necessary to understand the value of wallets when calculating customer lifetime value (CLV). This way, protocols can appropriately adjust token incentives as part of customer acquisition costs (CAC). Below is the trading volume and platform fee data from the past year, segmented by market:

As of February 19, 2023, the number of NFTs and fee percentages over the past year

It can be seen that the fees and trading volumes generated by most users are very low. Notably, while the wallet trading volume percentages for Blur and OpenSea are quite close, the top 1% of traders are the real differentiators:

Blur 99th percentile: $207,000 in trading volume

OpenSea 99th percentile: $158,000 in trading volume

These 1% of traders are the key drivers of the NFT market. Blur attracted top traders through its recent airdrop and zero fees. OpenSea also launched a zero-fee mechanism to combat the growing threat from Blur. However, it remains unclear how these platforms will generate revenue at this stage. Airdropping tokens to users who do not bring significant returns does not seem to be a reasonable marketing strategy. The analysis below details how LooksRare and X2Y2 airdropped large amounts of tokens to users who ultimately never generated any revenue for their platforms.

LooksRare & X2Y2: Vampire Attack

At the beginning of 2022, OpenSea was thriving. Its monthly trading volume reached $4 billion, and it held nearly 99% of the active user share. However, OpenSea had no plans to issue tokens and instead planned to go public, which left many dissatisfied.

In early January, LooksRare entered the scene, targeting OpenSea users who had traded over 3 ETH between March 2021 and December 2021. Over 124,000 users were eligible for the airdrop, with 67% of addresses claiming it. The distribution of LooksRare tokens was as follows, with users receiving between 125 to 10,000 $LOOKS.

Distribution of $LOOKS at the time of airdrop with USD valuation

On the first day of trading, $LOOKS traded around $2.10, with an estimated total airdrop value of $206 million. Within weeks, LooksRare's token surged by 180%, growing from $0 to over $20 billion in market cap.

Accumulated volume of LooksRare via Hildobby

X2Y2 launched over a month later. Any user who had traded NFTs on OpenSea before January 1, 2022, was eligible for the airdrop. X2Y2 airdropped 120 million tokens, with a low claim rate of only 23%. The remaining unclaimed tokens were permanently locked in the contract.

X2Y2 airdrop distribution by number of tokens received

How Do Wallets Affect Airdrops?

From the analysis of the++$UNI airdrop++, it appears that most original airdrop holders eventually "dumped" their tokens. Simply put, this is akin to wallets that do not stake or hold any tokens. LooksRare and X2Y2 are no exceptions. Over 59% of $LOOKS and 85% of $X2Y2 airdrop wallets ultimately discarded their tokens.

$LOOKS airdrop wallets: Hold/Discard ratio

$X2Y2 airdrop wallets: Hold/Discard ratio

Other airdrop token data may be lower, but since LooksRare and X2Y2 offered profitable staking rewards, many users capitalized on the tokens to earn profits.

It is also worth noting that "dumping" exists to varying degrees in $LOOKS and $X2Y2. While some believe that whales holding large amounts of tokens are more motivated to hold than small wallet holders, this view does not hold true.

Hold vs. Discard percentage based on $LOOKS airdrop amount

Converting Airdrop Recipients into Buyers

Despite the requirement for LooksRare airdrop recipients to list NFTs on LooksRare to claim tokens, most wallets ultimately never conducted any actual transactions on the platform. In fact, the conversion rate for purchasing NFTs was only 24%.

Probability of $LOOKS airdrop recipients choosing to purchase 1 NFT

X2Y2's conversion rate is better but still not ideal.

Probability of X2Y2 airdrop recipients choosing to purchase 1 NFT

While listing NFTs creates purchasable NFTs in the market, many wallets did not even sell NFTs and withdrew their NFTs after claiming the airdrop. Since only one NFT listing was required, X2Y2 and LooksRare missed out on additional revenue they could have earned from users.

The retention rate of airdrop wallets on LooksRare was less than 10% over four months. A year after the airdrop, only 0.2% of airdrop recipients remained active.

Percentage of active airdrop recipients and retention rate of $LOOKS airdrop recipients

Distributing tokens in large airdrops also poses the problem that without further incentives, many users will never interact with the platform. Thus, smaller airdrops may be more effective in encouraging user engagement and platform usage.

Airdrop Users vs. Others

A small remaining portion of airdrop wallets showed high loyalty. On LooksRare, 20-30% of weekly trading volume comes from airdrop recipients, and about 25% of weekly active buyers are airdrop recipients.

X2Y2 shows similar metrics for airdrop recipient activity and trading volume:

Blur: A New Paradigm for Airdrops?

Blur aims to address the shortcomings of previous NFT markets. Like earlier products, it plans to airdrop tokens to users, but in a sophisticated manner, with the airdrop occurring in three rounds:

First round: Users who bought or sold NFTs in the past six months

Second round: Users actively listing NFTs on Blur

Third round: Users placing bids on Blur

Despite Blur's broad approach to users, only a few of the eligible Blur addresses ultimately used the platform. However, as traders sought to maximize their airdrop, relevant metrics for Blur soared.

Among Blur's total users, 41% had purchased NFTs before the launch. These wallets often accounted for the majority of trading volume on the platform.

Since Blur's primary target audience is OpenSea users, it offers additional rewards to foster user loyalty. For addresses using both OpenSea and Blur, most ended up spending more on OpenSea after Blur's launch.

Percentage of addresses spending more on Blur than OpenSea since launch

Blur's penetration into the OpenSea user base is impressive. This indeed shows that providing token rewards through an airdrop model is effective, especially in the long term.

With the launch of the Blur airdrop and the distribution of 360 million tokens, the estimated value of its airdrop is currently $288 million (assuming an average price of $0.8 on the first day of trading).

$BLUR airdrop distribution

However, as expected, many have sold or transferred the airdrop out of their wallets. Only 21% of addresses retained their $BLUR airdrop.

$BLUR airdrop: Hold/Discard ratio

It is still too early to declare Blur and its airdrop a total success. A noteworthy metric is the increase in the number of active addresses post-airdrop, currently at 31%. On the other hand, users who discarded tokens or remained inactive show lower activity rates. So far, Blur's performance indicates that the platform is attracting users, possibly due to another airdrop on the horizon.

Number and percentage of wallets that purchased NFTs on Blur after the airdrop

Why is Blur So Popular?

The airdrop from Blur indeed brought significant discussion to the platform, and trading volume surged accordingly. Many speculate that the airdrop could lead to the demise of OpenSea. Others believe that professional traders are driving all the trading volume to obtain more airdrop rewards. To investigate this theory, we analyzed the total trading volume, profits, and wash trading of Blur's top traders.

Trading volume on the Blur platform shows a highly uneven distribution, with nearly 20% of total purchases made by 25 addresses. 45% of the purchase volume comes from the top 250 users, demonstrating the significant contribution of power users to platform trading volume. In contrast, the top 250 addresses on OpenSea account for only 11% of total trading volume.

Power users on Blur: Number and cumulative amount by user

The total amount of airdrop rewards claimed on the Blur platform is closely related to trading volume. Traders can earn $BLUR rewards of 2%-10% of their total trading volume. Some addresses even claimed millions of dollars in the airdrop. Excluding NFTs in wallets, many of these users achieved significant profits merely through trading on the platform and claiming airdrop rewards (sell volume - buy volume + airdrop). When considering the airdrop factor, the number of "profitable traders" increases by another 20%.

User profitability on Blur

Thanks to the airdrop, top traders on the platform witnessed their PnL increase by an astonishing 1000% or more, highlighting Blur's attractiveness compared to OpenSea.

Wash Trading on Blur

While the overall wash trading ratio on Blur is relatively low, around 11%, top traders on the platform engage in wash trading to maximize profits. Analysis shows that wash trading accounts for 37% of total trading volume for the top 5 traders, with most top traders participating in some form of wash trading.

Percentage of wash trading for top users on Blur

Even those well-known wallets that claimed millions of dollars in $BLUR rewards had over 25% of their Blur trading volume marked as wash trading. Over 90% of wash trading wallets claimed at least $100,000 in $BLUR rewards. Although wash trading is less common among regular users, the top traders driving trading volume and claiming the largest rewards are engaging in wash trading, raising concerns about the fairness of the airdrop and whether there is manipulation of trading volume and other metrics.

It turns out that the BLUR airdrop is an effective strategy to generate buzz and attract new users to the platform. However, many users quickly discarded the token. The high trading volume of Blur and whether it can replace OpenSea as the dominant player is also under scrutiny, as the system is manipulated by traders whose trading is merely aimed at maximizing returns.

Conclusion

Over the past year, the NFT market has witnessed a series of airdrops, but the success of these airdrops is debatable. Through careful study of the airdrops of $LOOKS, $X2Y2, and $BLUR tokens, we found significant sell-offs occurring post-airdrop, and user activity sharply decreased after the airdrop. Blur has made significant progress in the airdrop model by introducing multiple rounds of airdrops and related criteria, but a small portion of users seems to manipulate the entire hype and trading volume. From the data, we can conclude the following:

• Large airdrops may backfire, as users often sell the tokens after claiming them, and the supply of tokens is too abundant.

• Conducting multiple rounds of airdrops is effective in retaining user attention, as seen in how Blur successfully converted one-time users into loyal customers.

• A one-size-fits-all approach to airdrops does not work. Instead, leveraging on-chain data to incentivize rewards and segment users can attract high-quality users and significantly improve the success rate of airdrops.

• The history of airdrops may be filled with disappointments, but continuous improvements also promote long-term alignment of interests between protocols and users.