Note: Originally published on March 22, 2023 on Mirror.
First, I would like to begin this post by paying tribute to Takeoff. RIP and thank you for inspiring the title of this piece. As the Arbitrum airdrop is set to launch tomorrow, I wanted to create a post explaining the concept of an airdrop and its significance. Most cryptocurrency companies generate revenue by utilizing a token that enables token holders to vote on company decisions. This establishes a flat, democratic structure where each token represents a vote. A unique aspect of tokens is the practice of distributing them to early adopters through a process known as an "airdrop."
Since the blockchain is public, companies can identify addresses using their product and directly send tokens to those users. Arbitrum, a layer 2 solution on Ethereum, is airdropping 11.62% of its total tokens to early users. Users will receive tokens simply for trying out the product. At a predetermined block number, a smart contract will allow eligible users to claim ARB tokens based on the specific criteria set by the project developers. This method of rewarding early adopters is made possible by the transparent nature of blockchain technology, which allows companies to identify users and airdrop tokens directly to them.
Why is the concept of airdrops important? To understand this, let's first take a look at how companies traditionally distribute value to their users in conventional markets, such as through equity. The company's ownership starts with the founders, who then sell a portion of the company to venture capitalists, and eventually, some shares are offered to the public through an initial public offering.
For instance, consider Uber. When you first used Uber, it was likely due to a friend sending you a $10 referral link. If you enjoyed the service, you continued using it. For just $10, Uber could potentially retain you as a customer, reaping various benefits. Your usage data helps the company pitch to VCs for more funding, while your continued use allows them to test new features, all at the cost of a mere $10 referral bonus. Users' first opportunity to acquire equity in a product they've been using for a long time comes late in the company's life cycle during its IPO, and they often face the risk of being dump on by insiders.
Now, imagine if instead of a $10 bonus, early Uber drivers and riders received company shares for being early adopters and testers of the product. This is how airdrops work in the crypto space. Users receive tokens that represent a stake in the project, and as they use the platform more, the more tokens they can potentially receive. Take the example of Arbitrum. When it went live, many people wanted to test all the dApps on the platform for various reasons, including the possibility of an airdrop. The fact that Arbitrum built a good product kept users in the ecosystem, and they were ultimately rewarded with tokens.
Airdrops enable crypto companies to align their interests with those of their users, fostering a stronger sense of commitment and engagement. Users are incentivized not only to try new products and services but also to continue using and supporting them, as they stand to benefit from the project's success. This creates a win-win situation, where both the company and its users share the upside of the project's growth and development. Consider a scenario where there are two different Ubers—one offers a $10 discount on your first ride, while the other provides a possibility of earning equity in Uber through an airdrop. Which app would you choose to use?
Furthermore, tokens distributed through airdrops are often more evenly spread across a broader user base, ensuring a more decentralized network. A more decentralized network can result in increased security, resilience, and fairness within the ecosystem. Instead of venture capitalists or wealthy individuals holding a majority of the equity and upside, a wider range of participants can benefit from the project's success. In conclusion, airdrops present a transformative approach to rewarding early adopters in the crypto space, fostering stronger commitment and engagement while aligning the interests of both companies and their users.
