Source: makeuseof, slightly modified, author: OLUWADEMILADE AFOLABI
Edited by: RR
Today I would like to introduce Lockdrop, an “upgraded version” of Airdrop.
Unlike airdrops, lockdrops simplify the distribution of tokens. While the two distribution mechanisms are similar, lockdrops can promote greater network participation because free tokens are only distributed to those who are truly interested in the activity or project.
What is a lockdrop?
A lockdrop is a token distribution mechanism similar to an airdrop used by decentralized organizations or crypto projects to share their new tokens. In this mechanism, tokens are only given to those who have expressed interest in the project by locking up their existing tokens.
For example, you want to get new tokens from the newly launched Project A, so you provide your Ethereum (ETH) tokens to Project A to lock for a period of time as a representation of your interest. After the lock-in period, you will receive your ETH and new tokens.
During the lock-up period, your locked tokens are not burned or staked. Instead, they are simply securely locked in a smart contract to show your genuine interest in receiving free tokens and participating in the project. This is different from an airdrop, in which tokens are distributed to multiple random cryptocurrency wallet addresses, usually without preconditions or financial commitments.
Due to the streamlined nature of the lockdrop, most people who receive the new tokens are those who are invested in the success of the project. This may lead to a stronger network of project participants.
How does the lockdrop work?
A lockdrop is a token distribution method in which interested parties provide tokens to express their interest in the future of a project. The tokens to be locked are usually a predetermined cryptocurrency, such as ETH. The agreement is usually sealed by a smart contract, which mints new tokens based on the locked tokens.
Your locked tokens can neither be transferred nor resold until the lock-up period has passed. The lock-up period can span months or years. During the lock-up period, the value of the tokens may increase or decrease. This is usually based on the success of the project and market fluctuations.
The pledged tokens will be distributed to all network participants in proportion to the value they provide to the network. Typically, the amount of new tokens you will receive will be affected by how many tokens you lock up and how long you lock them up.
How is lockdrop different from airdrop
While both lockdrops and airdrops are mechanisms for distributing tokens, they operate differently.
Airdrops are often used to increase project visibility. Airdrops distribute tokens to a select group of people, usually for free. Airdrop tokens may or may not be locked; if they are locked, then the lock period may be shorter than the lockdrop period.
On the other hand, a lockdrop is a distribution mechanism whereby participants provide a specified cryptocurrency in exchange for future project tokens. The locked tokens are usually restricted from transfer for a certain period of time. The smart contract determines the duration of the lock. The expected new tokens are usually delivered after the project is successfully funded.
In a lockdrop, you are investing in the expectation of locking up future tokens, whereas in an airdrop, you are getting free tokens that may or may not be locked.
Benefits of lockdrop
The lockdrop has gained tremendous traction as it provides significant benefits to project participants or founders.
1. Distribute to more interested participants
Most cryptocurrencies want to build a strong decentralized network and usually use different mechanisms to achieve this goal. For example, lockdrop is one of the mechanisms you can use to distribute tokens to more people who are truly interested, thereby creating a stronger decentralized network.
2. Aligned incentives
By locking up tokens for a certain period of time, token holders are encouraged to stick around, look forward to, and contribute to the development of the token project. This way, the tokens will appreciate, the holders will benefit, and the project will succeed. The possibility of maximizing the return on investment (ROI) is enough to motivate most contributors to participate in the lockdrop.
3. Low entry barriers
Lockdrops typically have a low barrier to entry, as participants only need to contribute a small amount of cryptocurrency to participate. This can make it more accessible to a wider range of people, thereby expanding its reach. Additionally, lockdrops are typically seamless, as all that’s required is a cryptocurrency wallet in addition to the tokens.
4. Theft Protection
Since projects using lockdrop are still new, there is a risk of attackers stealing your tokens. However, lockdrop participants will be able to maintain their existing tokens because smart contracts will usually hold participants' time-locked tokens. Existing tokens are safe because the value is not being stored.
2 common lockdrop examples
There have been several blockchain lockdrops that have occurred in the cryptocurrency and blockchain space in recent years. Many popular projects have adopted lockdrops or are incorporating them as their projects progress.
1. Edgeware
In 2019, governance startup Commonwealth launched a lockdrop to distribute EDG tokens, the utility token for the smart contract platform Edgeware. The launch of Edgeware, Commonwealth’s product for governing, funding, and building decentralized communities, heralded the advent of the lockdrop approach.
Parties interested in holding EDG must hold Ether (ETH) to participate in the lockdrop. 90% of the 5 billion EDG tokens were distributed through the lockdrop. Participants receive EDG tokens based on how much Ether they lock up and how long they lock it up for. Participants can lock up their tokens for three months, six months, or a year, or connect the wallet holding their ETH to the chain - the least profitable lock-up option.
2. Astroport
In December 2021, Astroport launched a lockdrop to distribute 7.5% of the 1 billion ASTRO tokens. Those who locked Terraswap LP tokens during the trial period received 75 million ASTRO tokens.
During the seven days of the lockdrop, Astroport reported that 23,379 unique Terra wallet addresses deposited more than 1 billion Terraswap LP tokens. In addition to redeeming their tokens and receiving ASTRO tokens, participants in the lockdrop also became founding members of the Astral Assembly, Astroport’s governing body.
Hitchhiking on lockdrop
The lockdrop proved that a project can be staffed only by people who are genuinely interested in the project. This token distribution mechanism is likely to gain more traction over time, as it ensures that new free tokens only reach the hands of useful participants who are willing to invest in the success of the project.
All in all, no matter what kind of airdrop it is, its fundamental purpose is to motivate participants. Would you like to take advantage of the lockdrop?