Since its public launch 5 months ago, Blur has become the industry’s top NFT marketplace and trading platform, with over 40% market share by trading volume prior to its airdrop in February 2023. Beating incumbents in a competitive landscape requires more than just product and UX improvements — it requires sophisticated incentives to guide and increase user adoption.
Over the past few years, there has been an explosion of ideas for using tokens to build networks, including incentivizing growth or loyalty among participants, capturing value, or providing core utility for various types of products. Common token gameplay focuses on one-time retroactive airdrops to incentivize participation and reward early users (such as Uniswap, ENS); to ongoing liquidity mining projects that reward users for performing certain actions (such as LooksRare, Compound).
Research into Blur reveals a more complex token distribution design that provides staged rewards to line up the network’s growth. This analysis will consist of two parts: the first article will explain Blur’s approach to tokens and provide advice for founders looking to leverage the token to grow their network. A future blog post will share data analysis to quantify the impact of airdrops on the market and usage.
Background on the Blur airdrop
BLUR has a total supply of 3 billion tokens, of which 360 million, or 12%, were airdropped and available for claiming on February 14. As of February 20, 112K unique wallets have claimed the airdropped tokens, with 93% of tokens claimed. With a token price of $1.21 as of February 20, the total value of the airdrops is over $435 million, with a median airdrop of 298 tokens (worth $360).
Prior to the airdrop, Blur's token incentives had several phases, collectively referred to as "Season 1," which is similar to the sequential way the network grows. Importantly, during these phases, users are not airdropping tokens, but instead receiving off-chain “care packages” that can be viewed on Blur’s website as points for future airdrops of BLUR tokens or mystery boxes.
There are four stages of rewards for the first season
0 Airdrop: Rewards social referrers to attract traders to its platform (announced May 4, 2022).
You get points when you join, when you use invites, and when people you invite use invites.
Blur’s first phase airdrop was announced in May 2022, when the platform was still on a waitlist, and rewards users who actively recommend others to use the platform. It’s worth noting that these rewards are calculated in a way that not only incentivizes invitations, but also high-volume traders.
Airdrop Phase 1: Reward Ecosystem Trading Activity (Announced October 19, 2022)
Blur’s first airdrop coincides with the public launch of its NFT aggregator and marketplace. This airdrop rewards users who have been active in Ethereum NFT trading for the past 6 months. To request an airdrop, users need to list an NFT on Blur within 14 days.
“Our goal is to make Blur a marketplace that the entire NFT community owns and benefits from. Our first step is to airdrop a care package to everyone who has continued to trade NFTs over the past 6 months.”
Airdrop Phase 2: Reward addresses for building supply in the market (announced October 19, 2022)
Along with announcing Airdrop 1, Blur also announced Airdrop 2 to reward individuals who list NFTs on Blur before November. The second airdrop also rewards traders who use Blur’s new features, including their professional order placement tools (e.g., placing orders at the NFT characteristic bottom price, sweeping the floor price of NFT, etc.). Airdrop 2 further rewards traders who list frequently, listing actively traded collections and incentivizing blue-chip NFT pending orders.
Notably, Blur also encourages users to be loyal to Blur, as opposed to other NFT marketplaces:
"Loyalty doesn't affect how many care packages you get in Airdrop 2, but it does affect your luck in revealing them. When you list on other markets, as long as you get them on Blur for the same price or lower Listing the price will not affect your loyalty score. You can use Blur’s advanced order tool to list the NFT on all NFT trading platforms at once!”
Airdrop Phase 3: Reward Bidding to Stimulate Demand (Announced on December 14, 2022)
With a supply base at lower prices than on other markets, Blur has announced a third airdrop focused on building the demand side. In conjunction with the third airdrop, Blur launched their bidding contract, allowing traders to bid for collections more efficiently (i.e. gas-less bidding).
Blur also encourages traders to create the best bid-ask spread possible, with traders who bid better earning larger rewards.
"In a set, the bid that takes the highest 'risk' earns the vast majority of points. I.e. if the reserve price is 1.01 and there are 100 bids at 1, and you bid at 0.99, then your bid will not earn you 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 the most 'risk'."
Crucially, while listing incentives are no longer available during this period, Blur maintains the same loyalty promise: users who list on Blur at the same or lower price will receive more when they open their care package Luck (meaning more airdrops available) helps keep Blur’s price at its lowest relative to the rest of the market.
care package
Care Packages come in four different rarity levels: Common, Rare, Legendary, and Mythical. The rarity of a care package is tied to a user’s loyalty score to Blur, which differentiates between actions such as listing a common NFT or a blue-chip NFT, with rarer packages receiving more tokens.
February 14, 2023 – Nearly a year after the initial airdrop was announced, Blur users can open their care packages to reveal the BLUR tokens inside. The top five wallets each claimed over 2 million BLUR tokens, with the median Blur airdrop being 298 BLUR (worth $360 as of February 20) and the average being 2,995 tokens (worth $3 , $623).
In order to claim their airdrop, Blur users need to tweet about the airdrop. Blur pre-populates Twitter with the number of tokens requested (users can edit the tweet and claim the airdrop).
Key lessons learned from the Blur airdrop
Blur’s innovative airdrop design has some important lessons learned
1. Market growth of sequential airdrops
Blur’s innovation is its use of a sequential airdrop model, building the network in stages and matching it with new product launches.
This ordered airdrop of tokens has two key effects:
Building the network in stages corresponds to the way supply is established in the market first, followed by demand.
Keep Blur users engaged and get them into newly launched product features like bidding contracts.
2. Uncertain rewards create greater motivation
Like most cryptocurrency projects, Blur decided to keep the specifics of airdrops (care packages) a secret until launch, but the point is that they abstracted the details behind gamification and quantifiable care packages to provide users with short-term rewards in the interim. . Each airdrop after that is “more valuable than the next,” creating an incentive to continue participating because users don’t know the true nominal value they will receive.
Contrast this approach with LooksRare’s original token distribution strategy, which functioned more like DeFi liquidity mining, with rewards being a function of specific market activity. LooksRare rewards traders based on trading volume, meaning traders can reliably calculate how many tokens (and USD value) they will receive based on their trading volume on a given day. This resulted in wash trading by traders in order to receive LooksRare token rewards, and resulted in little ongoing organic activity (94% of LooksRare’s historical trading volume is said to be wash trading).
In studies comparing the effort people put into winning a certain reward versus an uncertain reward, researchers found that uncertainty produced greater motivation and effort. Blur's model closely reflects the four-step habit-formation process proposed by author Nir Eyal: a trigger point to start using the product, an action to satisfy the trigger point, a variable reward for the action, and some type of investment that ultimately makes the product useful. Users are more valuable.
Another related strategy is to use care packages of varying rarities to reward loyalty and promise more Blur tokens for rarer care packages. This gamifies uncertainty, creating an incentive for users to receive rarer care packages.
3. Incentivize virality and social sharing
In order to get off the waitlist and join the early beta, users need to earn as many Blur points as possible. Blur gamifies and rewards users’ viral coefficients (the number of new users generated by existing users), with users who recommend more shares earning more points. Influencers posted on Twitter, users shared referral links in group chats, and Blur created a wave of invitations. Importantly, users who get the beta can earn points for the first airdrop, and participants on the waiting list and beta users can receive an additional airdrop from Blur.
Blur is also specifically encouraging sharing on Twitter, including promising to send care packages to random users who retweet the announcement. Finally, to open the “Care Package” and receive the Blur airdrop, you need to tweet, and Twitter will be pre-populated with Blur’s airdrop information. While users could circumvent this and still receive airdrops (e.g. via tweets and deletes), this mechanism still caused a huge backlash on the day of the airdrop, with thousands of tweets about the airdrop.
Finally, throughout the process, Blur maintains a leaderboard for users, ranked by points. This creates gamified competition and social proof, showing the activity of other users.
4. Transfer liquidity to Blur
Blur’s Loyalty Score – which determines the rarity of Care Package airdrops – is determined by how well a trader maintains competitive exclusivity in Blur. Traders maximize their Blur loyalty score by listing NFTs on Blur at a lower price than other marketplaces. Conversely, listing an NFT on other marketplaces at a lower price reduces a user’s loyalty score.
This incentive leads traders to list NFTs on Blur at lower prices, creating a supply moat for Blur and increasing its appeal to NFT buyers. During the bidding incentive period, bids closest to the floor are rewarded the most, further creating a tight bid-ask spread that makes Blur's floor lower than what's available on other markets.
It’s worth noting that Blur’s loyalty program will continue into its second season, serving as an incentive to keep traders loyal to the platform.
5. Continuous incentives for new users
Unlike many airdrop programs that target early adopters, Blur announced that it will continue to airdrop tokens to new users in a second season, with additional incentives for traders who list and bid on NFTs within thirty days of the airdrop.
On the day of the airdrop, Blur also announced a care package for new users. Requesting a care package involves browsing the Blur feature's animated slideshow, purchasing the NFT through the marketplace, and listing it on Blur. This is strategic timing because Blur’s website is likely to have a lot of potential user traffic on the day of the airdrop. Meeting these new users on the day of the airdrop and incentivizing them to use Blur could be an effective customer acquisition strategy.
6. Continuous iterative airdrop plan
On the day of the airdrop, Blur announced an Incentive Committee with the power to deploy 10% of the community token supply to further incentivize Blur adoption. Once the budget is exhausted, the committee can also request more tokens through governance.
The committee allows for continued iteration of Blur’s airdrop program—avoiding user manipulation to maximize airdrops—without requiring ongoing DAO approval. This is similar to web2’s strategy of constantly updating incentives to optimize network dynamics.
Improvement suggestions and open issues
In reflecting on the airdrop, we identified several areas of opportunity for the future:
Pay attention to user retention
To further decentralize and retain users, one suggestion in Marc Boiron's Sufficient Decentralization Playbook is to incentivize the committee to evolve into a sub-DAO, similar to the Uniswap Foundation. This may be a sustainable approach as the market develops. Keep motivation alive.
Future airdrops can benefit from using a time-locked airdrop vesting schedule, i.e. users who sell are not eligible to receive the remainder of their allocated airdrop. Additionally, airdrops may be contingent on continued platform usage (such as a certain number of bids or listings per month) or actions such as governance participation.
Build a moat around demand and supply
Blur creates an element of buyer lock-in through the use of bidding contracts, which users need to deposit into in order to place bids. As of February 20, there were $128 million in deposits in the auction contract, representing potential bids.
Blur could further enhance its demand-side maintainability, allowing users to earn income from deposited capital; offer additional financial products to professional traders; or use other incentives to help lock in liquidity. As the NFT market war continues, creating a supply moat for the market will also be critical for future defensibility.
Token creation tools
Creating greater utility for the token, making it a core part of the product experience, and building demand for the token can be the next area of focus. This could take inspiration from tokens like Binance’s BNB, which offers discounted trading fees on the exchange, or SuperRare’s RARE, which entails curating independent storefronts on a platform called Spaces.
Finally, there is the existential question of whether the token will generate value. Since the token’s launch, users on Twitter have questioned how value accrues to Blur token holders given the existence of an equity company that builds and maintains the front-end. Since Blur is the dominant (and only) application built on its protocol, this could lead to distorted incentives in terms of driving the value of the DAO vs. equity business, and leave a question mark as to whether or how the company can make a legitimate contribution to the DAO. Letter of promise.
Looking ahead to the next iteration of user incentive token mechanisms
Considering the recent airdrops, the long-term effects of Blur’s airdrop strategy will only become apparent over time. So far, over 75% of airdrop recipients have sold a portion of their airdrop. Early data is promising regarding the effectiveness of the airdrop, however, Blur’s volume market share (according to bid sources) rose from mid-40% to over 80% within days of the airdrop. As of February 20th—one week after the airdrop—the 1st, 3rd, and 5th largest airdrop recipients still hold all of their airdrops, at over 2 million tokens each (worth over $2.4 million) .
There’s no doubt that Blur’s airdrop has broken new ground for token adoption for network growth. Ultimately, the goal of token incentives should be to improve core KPIs: long-term retention and stickiness. The ideal outcome of a token is that user ownership makes the product more successful than it would be without token ownership. Doing this still requires building products that people want, progressive decentralization, and evolving plans customized for each product and protocol.
