Analysis of Airdrop Performance in 2024: Why Nearly 90% of Token Airdrops Failed?

Original Title: Airdrops in the Barren Desert: Surveying the traits behind 2024's 11% success rate

Author: Keyrock

Compiled by: Scof, ChainCatcher

Key Points:

• Difficult to Sustain

Most airdrops crash within 15 days. In 2024, despite initial price surges, 88% of tokens depreciate within a few months.

• Significant Volatility

Airdrops distributing over 10% of total supply saw stronger community retention and performance. Those below 5% typically face rapid sell-offs post-launch.

• High FDV

Excessively high fully diluted valuation (FDV) harms projects the most. High FDV suppresses growth and liquidity, leading to sharp price declines after airdrops.

• Liquidity is Crucial

Without sufficient liquidity to support high FDV, many tokens collapse under selling pressure. Deep liquidity is key to price stability post-airdrop.

• A Tough Year

Cryptocurrency struggles in 2024, with most airdrops hit hardest. For the few success stories, smart allocation, strong liquidity, and realistic FDV were their strategies.

Airdrops: A Double-Edged Sword of Token Distribution

Since 2017, airdrops have been a popular token distribution strategy to create early hype. However, in 2024, many projects struggle to succeed due to oversaturation. While airdrops still generate initial excitement, most result in short-term selling pressure, leading to low community retention and abandonment of protocols. Nevertheless, some standout projects have successfully broken this trend, proving that with the right execution, airdrops can still lead to meaningful long-term success.

Research Objective

This report aims to unravel the mystery of the 2024 airdrop phenomenon—distinguishing winners from losers. We analyzed 62 airdrops across 6 chains, comparing their performance across several dimensions: price action, user acceptance, and long-term sustainability. While each protocol has its unique variables, the collective data clearly depicts how these airdrops fared in achieving their intended goals.

General Performance

When examining the overall performance of 2024 airdrops, most performed poorly post-launch. While some saw impressive returns early on, the majority faced downward pressure as the market recalibrated their value. This pattern points to a broader issue within the airdrop model: many users may only be there for the incentives, rather than engaging with the protocol long-term.

For all airdrops, a key question arises—does the protocol have staying power? Once the initial rewards are distributed, do users continue to see value in the platform, or is their participation purely transactional? Our analysis from multiple time frames reveals a key insight: for most of these tokens, enthusiasm wanes quickly, often within the first two weeks.

Overall Performance

Observing price trends over 15, 30, and 90 days, it is clear that most price movements occur in the initial days post-airdrop. Three months later, few tokens manage to achieve positive returns, with only a handful defying the trend. Nonetheless, it is important to consider the broader context: the overall cryptocurrency market performed poorly during this period, complicating matters further.

On-Chain Distribution

Despite the overall poor performance, not all chains fared the same. Among the 62 airdrops analyzed, only 8 achieved positive returns after 90 days—4 on Ethereum and 4 on Solana. There were no winners on BNB, Starknet, Arbitrum, Merlin, Blast, Mode, or ZkSync. Solana's success rate was 25%, while Ethereum's was 14.8%.

This is not surprising for Solana, as it has become a favorite in the retail market over the past two years, truly challenging Ethereum's dominance. Moreover, given that many of the other chains we examined are second-layer chains directly competing with another chain, it is not shocking that only the parent chain retained a few winners.

While we did not include Telegram's Ton network, we do want to point out that there have been several successful airdrop cases on that network as enthusiasm and adoption have grown.

Chain Division

That said, if we attempt to separate large chains from their airdrops, will the data change when considering the price movements of public chain tokens? When we normalize these airdrop prices and compare them to the performance of their respective ecosystems—for example, comparing airdrops on Polygon with the price movements of $MATIC, or airdrops on Solana with $SOL—the results remain bleak.

Yes, the market has declined, and the highs of 2023 have cooled, but this is not enough to mask the dismal performance of airdrops, whether compared to system tokens or general alternatives. These sell-offs are not entirely isolated from the larger narrative, reflecting widespread market concerns about short-term booms. When what has already been deemed "established" is declining, no one wants something untested or "new."

Overall, improvements are at best modest, with Solana and ETH experiencing around 15-20% declines in the worst-case scenarios over certain 90-day windows, still indicating that the volatility of these airdrops is much greater and only loosely connected within the overall narrative, rather than in price performance.

Performance by Allocation

Another key factor influencing airdrop performance is the distribution of total token supply. The protocol's decision on how much token supply to allocate can significantly impact its price performance. This raises a critical question: Is it worth being generous? Or is it safer to be conservative? Does giving users more tokens lead to better price movements, or does it pose risks by giving away too much too quickly?

To break down this issue, we categorized airdrops into three groups:

• Small Airdrops: \<5% of total token supply
• Medium Airdrops: >5% and ≤10%
• Large Airdrops: >10%

We then examined their performance over three time periods—15 days, 30 days, and 90 days.

In the short term (15 days), smaller airdrops (\<5%) performed better, likely due to limited supply creating less immediate sell-off pressure. However, this initial success is often fleeting, as small airdrop tokens experience significant sell-offs within three months. This may be due to a combination of factors: low supply initially suppresses sell-offs, but over time, as narratives shift or insiders begin to sell, the broader community follows suit.

Medium airdrops (5-10%) performed slightly better, balancing supply distribution with user retention. However, large airdrops (>10%) performed best over longer time frames. These larger allocations, while potentially facing greater sell-off pressure in the short term, seem to cultivate a stronger sense of community ownership. By distributing more tokens, protocols may empower users, giving them a greater stake in the project's success. This, in turn, can lead to better price stability and long-term performance.

Ultimately, the data suggests that being less stingy with token distribution is worthwhile. Generous protocols in airdrops tend to foster a more engaged user base, leading to better outcomes over time.

Distribution Dynamics

Impact of Token Allocation

Our analysis shows that the scale of airdrops directly affects price performance. Small airdrops create less initial sell-off pressure but often see significant sell-offs within months. On the other hand, larger allocations do create more volatility early on but yield stronger long-term performance, indicating that generosity encourages greater loyalty and token support.

Linking Distribution to Market Sentiment

Community sentiment is a key factor in successful airdrops, though often elusive. Larger token allocations are typically viewed as fairer, granting users a stronger sense of ownership and participation. This creates a positive feedback loop—users feel more invested and are less likely to sell their tokens, aiding long-term stability. In contrast, smaller allocations may initially feel safer but often lead to fleeting enthusiasm followed by rapid sell-offs.

While it is difficult to quantify the sentiment or "vibe" of all 62 airdrops, they remain powerful indicators of a project's lasting appeal. Signs of strong sentiment include active and engaged communities on platforms like Discord, organic discussions on social media, and genuine interest in the product. Additionally, the novelty and innovation of the product often help maintain positive momentum, attracting more committed users rather than opportunistic reward hunters.

Impact of Fully Diluted Value

An important area of concern is whether the fully diluted value (FDV) of tokens at launch significantly impacts their performance post-airdrop. FDV represents the total market value of a cryptocurrency if all possible tokens were in circulation, including those that are not yet unlocked or allocated. It is calculated by multiplying the current token price by the total token supply, including circulating tokens and any locked, vested, or future tokens.

In the crypto space, we often see projects with seemingly inflated FDV at launch compared to their actual utility or impact. This raises a critical question: Are tokens punished for inflated FDV at launch, or does the impact of FDV vary by project?

Our data spans projects that launched with a conservative FDV of $5.9 million to those that launched with an astounding $19 billion—3000 times apart among the 62 airdrop samples we analyzed.

As we plotted this data, a clear trend emerged: regardless of project type, hype level, or community sentiment, the larger the FDV at launch, the greater the likelihood of a significant price drop.

FDV Relationships

Two main factors are at play here. The first is basic market principles: investors are attracted to perceived upward mobility. Tokens with low FDV offer room for growth and the psychological comfort of "early entry," drawing in investors promising future gains. Conversely, projects with inflated FDV often struggle to maintain momentum as perceived upside becomes limited.

Economists have long discussed the concept of "space" in markets. As Robert Shiller noted, "irrational exuberance" quickly fades when investors feel returns are constrained. In the crypto realm, when a token's FDV suggests limited growth potential, that exuberance similarly dissipates quickly.

The second factor is more technical: liquidity. Tokens with high FDV often lack the liquidity to support those valuations. When large incentives are distributed to the community, even a small fraction wanting to cash out can create immense sell-off pressure, with no buyers on the other side.

Take $JUP, for example, which launched with a $690 million FDV, supported by a series of liquidity pools and market makers estimated at $22 million on launch day. This resulted in a liquidity-to-FDV ratio of only 0.03% for $JUP. While this figure is relatively low compared to its meme coin counterpart $WEN's 2% liquidity-FDV ratio, it is comparatively high against other tokens of similar weight.

In contrast, Wormhole launched with a massive $13 billion FDV. To achieve the same 0.03% liquidity ratio, Wormhole would need $39 million in liquidity across various venues. However, even including all available pools, both official and unofficial, as well as Cex liquidity, our best estimate is closer to $6 million—just a small fraction of the required amount. With 17% of tokens allocated to users, this set the stage for a potentially unsustainable market cap. Since launch, $W has dropped 83%.

As a market maker, we know that without sufficient liquidity, prices become highly sensitive to sell-off pressure. The combination of two factors—the psychological demand for growth potential and the actual liquidity needed to support high FDV—explains why tokens with higher FDV struggle to maintain their value.

Data confirms this. Tokens with lower FDV experienced less price erosion, while those that launched with inflated valuations suffered the most significant losses in the months following their airdrops.

Overall Winners and Losers

To gain deeper insights into some participants, we selected a winner and a loser from this quarter's airdrops as case studies to analyze. We will explore what they did right and where they went wrong, leading to successful community launches and less successful ones.

Airdrop Season: Case Studies of Winners and Losers

As we delve into airdrop season, let’s examine a standout winner and a notable underperformer to reveal the factors that led to their starkly different outcomes. We will explore what these projects did right or wrong, ultimately shaping their success or failure in the eyes of the community.

Winner: $DRIFT

First up is Drift, a decentralized futures trading platform that has been operating on Solana for nearly three years. Drift's journey has been filled with victories and challenges, including withstanding several hacks and exploits. However, each setback has forged a stronger protocol, evolving into a platform that has proven its value far beyond airdrop farming.

When Drift's airdrop finally arrived, it was met with enthusiastic reception, particularly from its long-term user base. The team strategically allocated 12% of the total token supply for the airdrop, a relatively high percentage, and introduced a clever bonus system that triggered every six hours after the initial distribution.

Launching with a modest market cap of $56 million, Drift surprised many, especially compared to other virtual automated market makers (vAMMs) that had fewer users and less history but higher valuations. Drift's value quickly reflected its true potential, reaching a market cap of $163 million—growing 2.9 times post-launch.

The key to Drift's success lies in its fair and thoughtful distribution. By rewarding long-term, loyal users, Drift effectively filtered out new Sybil farmers, cultivating a more authentic community and avoiding the toxicity that sometimes plagues such events.

What Sets Drift Apart?

Heritage and Solid Foundation

• Drift's long history allowed it to reward its existing committed user base.
• With a high-quality, proven product, the team could easily identify and reward true super users.

Generous Tiered Distribution

• Allocating 12% of the total supply—a significant proportion for an airdrop—demonstrates Drift's commitment to its community.
• The phased release structure helps minimize sell-off pressure, maintaining value stability post-launch.
• Crucially, the airdrop was designed to reward actual usage, not just metrics inflated by point farming.

Realistic Valuation

• Drift's conservative launch valuation avoided the pitfalls of overhype, maintaining expected stability.
• Sufficient liquidity was seeded in the initial liquidity pool, ensuring smooth market operation.
• Low fully diluted valuation (FDV) not only set Drift apart but also sparked broader industry discussions about the competitors' overvaluation.

Drift's success is not coincidental; it is the result of intentional choices prioritizing product strength, fairness, and sustainability over short-term hype. As airdrop season continues, it is clear that protocols hoping to replicate Drift's success should focus on building a solid foundation, fostering genuine user engagement, and maintaining a realistic view of their market value.

$ZEND: From Hype to Collapse—A Starknet Airdrop's Failure

ZkLend ($ZEND) is now facing significant downturns—its value has plummeted by 95%, with daily trading volumes struggling to exceed $400,000. This is a stark contrast to a project that once had a market cap of $300 million. Even more unusually, ZkLend's total locked value (TVL) now exceeds its fully diluted valuation (FDV) by more than double—an uncommon and not positive signal in the crypto world.

So how did a project soar amid the hype surrounding Starknet—a zk-rollup solution aimed at scaling Ethereum—end up in such an unstable position?

Missed the Starknet Wave but Didn't Get Onboard

ZkLend's concept was not groundbreaking—it aimed to be a lending platform for various assets, benefiting from the Starknet narrative. The protocol leveraged Starknet's momentum, positioning itself as a key player in the cross-chain liquidity ecosystem.

Premise:

• Generate a farming network where users can earn rewards across different protocols.
• Attract liquidity and users through incentives and cross-chain activities.

However, in execution, the platform ultimately attracted "mercenary" yield farmers—those focused solely on short-term rewards with no commitment to the protocol's long-term health. Instead of cultivating a sustainable ecosystem, ZkLend found itself at the mercy of reward hunters, leading to fleeting engagement and low retention rates.

Counterproductive Airdrop

ZkLend's airdrop strategy exacerbated its issues. With no significant product or brand recognition prior to the airdrop, the token distribution attracted speculators rather than genuine users. This critical misstep—failing to adequately vet participants—resulted in:

• A surge of reward hunters eager to cash out quickly.
• A lack of loyalty or genuine engagement, with participants showing no long-term commitment.
• The token's value collapsing rapidly as speculators immediately sold their tokens.

Rather than building momentum and fostering loyalty, the airdrop created a brief burst of activity that quickly dissipated.

The Warning It Brings

ZkLend's experience serves as a powerful reminder that while hype and airdrops can attract users, they do not inherently create value, utility, or sustainable communities.

Key Lessons:

• Hype alone is not enough—building real value requires more than just buzz around a hot narrative.
• Airdrops without vetted users can attract speculation and undermine value, as ZkLend experienced.
• For new products without validated use cases, overvaluation poses significant risks.

Conclusion

If maximizing returns is the goal, selling on day one is often the best move—85% of airdrop tokens see price declines within months. Solana leads as the top public chain in 2024, but overall performance has not been as bad as expected given market conditions. Projects like WEN and JUP stand out as success stories, indicating that strategic approaches can still yield strong returns.

Contrary to popular belief, larger airdrops do not always lead to sell-offs. A token with a 70% airdrop allocation saw positive returns, highlighting that managing FDV is more important. Overestimating FDV is a critical mistake. High FDV limits growth potential and, more importantly, creates liquidity issues—inflated FDV requires substantial liquidity to sustain, which is often unavailable. Without sufficient liquidity, airdrop tokens are prone to severe price declines due to inadequate capital to absorb sell-off pressure. Projects launched with realistic FDV and solid liquidity supply plans are better positioned to survive volatility post-airdrop.

Liquidity is crucial. When FDV is too high, it places immense pressure on liquidity. In the absence of liquidity, large sell-offs can crush prices, especially in airdrops where recipients are eager to sell. By maintaining manageable FDV and focusing on liquidity, projects can create better stability and long-term growth potential.

Ultimately, the success of airdrops is not solely dependent on the scale of distribution. FDV, liquidity, community engagement, and narrative all matter. Projects like WEN and JUP have found the right balance, establishing lasting value, while others with inflated FDV and shallow liquidity have failed to maintain interest.

In a rapidly changing market, many investors make swift decisions—selling on day one is often the safest bet. But for those focused on long-term fundamentals, there are always some tokens worth holding.