Airdrops have become a popular tool for projects to distribute tokens to potential users. However, within the cryptocurrency community, the value and impact of airdrops has been a topic of debate. Some believe that airdrops are just a marketing gimmick that has no real impact on the success of a project. However, others believe that airdrops can be a powerful way to incentivize users to participate in a project and build a community around it.
In this report, we will explore the effectiveness of airdrops in the context of two Ethereum second-layer scaling solutions, Optimism and Arbitrum. We will analyze the impact of these airdrops on user engagement, token prices, developer activity, and overall project success. By studying the data and trends of these airdrops, we hope to provide valuable insights into the effectiveness of this marketing strategy in the current cryptocurrency space. So let's take a deep dive and see if airdrops are truly useless, or if they can bring real value to projects and participants.
Network activity before and after the airdrop
Source: optimistic.etherscan.io
Since their inception, both networks have experienced parabolic growth in their graphs of unique addresses, primarily due to the high gas fees of the Ethereum mainnet compared to transacting on layer 2 solutions. Optimism saw significant growth in May 2022, with the unique address graph rising from 350,000 to 800,000. Although the main reason for this growth is related to users claiming OP airdrops, the number of active addresses has steadily increased by 3.2 times from 850,000 in April 2023 to 3 million addresses.
Source: arbiscan.io
Likewise, Arbitrum’s unique addresses have been trending upwards. Notably, in July 2022, the network reached the 1 million milestone with its Nitro upgrade, which provided a boost to users. Since then, the number of unique addresses has quadrupled, with the latest development occurring with the launch of the $ARB token, which brought the number of unique addresses to 4.5 million.
Source: arbiscan.io
Regarding daily transactions, both networks are on an upward trend. For Arbitrum, transactions grew from 300,000 per day to a peak of 2.7 million per day, stabilizing at 1 million per day after the airdrop. In contrast, Optimism experienced a sharp decline in January 2023, with an average daily transaction volume of 300,000. The decline in Optimism transactions is attributed to the end of Optimism Quest Round 2, which means that farmers who once contributed to the growth in transaction volume are no longer participating.
Considering the observed trends in network activity, it is clear that airdrops have played a significant role in increasing user participation on the Optimism and Arbitrum networks. The implementation of airdrops has effectively increased the number of unique addresses in each network while promoting a general increase in daily transactions.
TVL Growth
The development of Arbitrum’s total locked value (TVL) reveals an interesting trend. For most of 2022, TVL experienced volatility primarily due to flows back to Layer-1 (L1) platforms. This shift was driven by a variety of factors, including market uncertainty caused by the Terra Luna (L1) debacle, L1 downtime, cross-chain bridge hacks, and the overall crypto winter. Despite these challenges, Arbitrum’s TVL has demonstrated resilience and adaptability.
Source: Arbitrum TVL from DefiLlama
After the token airdrop, Arbitrum’s total locked value doubled to a peak of approximately $2.5 billion, demonstrating the market’s strong confidence in the platform’s ecosystem. The rapid growth in total locked value suggests that airdrops can effectively incentivize users to participate in second-layer platforms and ultimately contribute to their long-term success.
Source: Optimism TVL from DefiLlama
Optimism, on the other hand, has seen significant growth in its total value locked (TVL) after introducing the $OP token for Aave users in early August. This incentive increased the platform’s TVL from $600 million to nearly $1.2 billion. However, after this initial surge, Optimism's TVL growth metric leveled off. This suggests that while airdrops and incentives can be effective in driving short-term growth, maintaining the momentum may require additional strategies or improvements to platform functionality.
To address this challenge and maintain long-term growth, Optimism has launched a retroactive public goods funding program. The program is designed to support the development and maintenance of public goods within the Optimism ecosystem, ensuring a robust and sustainable infrastructure for the platform. By investing in public goods, Optimism aims to foster continued innovation, ultimately contributing to the continued success of the platform and the broader second-layer technology landscape.
Source: Dune Analytics, 0xRoll
A crucial question is: what happens after the airdrop? Data analysis from the Dune dashboard collated by 0xRoll reveals in-depth trends regarding the behavior of Arbitrum network recipients. Approximately 57.4% of recipients transferred their tokens, with another 27% selling a portion of their allocation. Therefore, it is estimated that at least 84.5% of recipients liquidated a portion of their airdrop. While only a small portion of recipients chose to hold or accumulate their airdrop, this group was significantly outnumbered by those who chose to sell.
Source: Dune Analytics, Optimism Foundation
On the Optimism network, we have to infer the number of recipients who have liquidated their tokens based on the remaining balance or "dust" in their wallets. After the first airdrop, the number of holders peaked at 90,000, but within 17 days, this number decreased by 10% to 81,000. A similar trend was observed after the second airdrop in February 2023, with the number of holders decreasing by about 2%.
This pattern presents a fascinating phenomenon that deserves further exploration. The behavior of airdrop recipients raises questions about broader implications for Layer-2 networks. Does the propensity to liquidate airdropped tokens indicate short-term interest driven primarily by the prospect of immediate gain? If so, why are Optimism network recipients more reluctant to dump their airdrops than Arbitrum recipients? Do Optimism holders have more confidence that their asset will go up than Arbitrum holders?
Price Impact
Optimism (OP) has a circulating supply of 314,844,141 OP coins and a maximum supply of 4,294,967,296 OP coins. The maximum airdrop allotment available to platform users is 30,000 OP coins. This allotment would be worth nearly $100,000 if sold at its all-time high (ATH) of $3.22 in February 2023. However, the average holder only received about 1,000 OP coins, which would have netted them $3,000 if sold at the all-time high. Notably, the ATH for the OP token did not occur immediately after the airdrop, but almost a year later. This suggests that the airdrop had a more sustained, long-term impact on the token price.
Source: Dune Analytics for Optimism, springzhang
Arbitrum (ARB) has a circulating supply of 1.275 billion ARB, and its total and maximum supply are 10 billion ARB. The maximum airdrop allocation to users was 10,250 ARB, and only 0.7% of users were able to receive this amount. On average, recipients received 1,249 ARB, which would have received about $2,200 if sold at the highest price of $1.79. Unlike OP, the ARB token is relatively new on the market and is still establishing its price dynamics.
Source: Dune Analytics for Arbitrum, Blockworks
While the price impact seems to be more lenient in ARB, we believe this is because Arbitrum was launched during a market recovery, while OP was launched at the beginning of a bear market. Additionally, in the case of OP, the airdrop seems to have had a longer-lasting impact on the token value, with the ATH occurring almost a year after the airdrop. In contrast, ARB is still in the early stages of price discovery, and the full impact of the airdrop on its value remains to be seen.
Number of verified contracts before and after the airdrop
Source: arbiscan and optimistic.etherscan
Daily contracts verified provide us with valuable insights into the overall activity and development of the Ethereum network. A large number of daily contracts verified indicates that this ecosystem is full of vitality, continuous innovation and growth.
There is a significant difference in the number of daily verified contracts between Optimism and Arbitrum. Even after the airdrop to Optimism and the implementation of public funding, the number of deployed contracts appears to have reached a plateau. In comparison, Arbitrum has almost five times the activity of Optimism, deploying around 300 contracts per day compared to Optimism’s 60 contracts per day.
Although there is no clear explanation for this difference, one possible factor is the different approaches taken by the two platforms to contract deployment. In September 2021, Arbitrum began allowing projects to freely deploy contracts. Optimism, although it has been online for a longer time, took a more restrictive approach, allowing only a limited number of dApps to go online. This closed network was finally opened in December 2021, three months later than Arbitrum's decision to allow free deployment.
This timeline suggests that developers prefer platforms that allow them to experiment early and reach their target audience. Therefore, Arbitrum may have gained initial network effects due to its more open approach to contract deployment, attracting more developers and projects. This may be one of the reasons why Arbitrum’s daily number of verified contracts is higher than Optimism’s.
Are airdrops effective?
For Optimism and Arbitrum’s airdrops, they demonstrated varying degrees of effectiveness in promoting user engagement, driving token prices, and encouraging overall project success. The data suggests that while airdrops can indeed contribute to short-term growth and interest in a platform, their long-term impact may depend on a variety of factors, such as network governance methods, implementation of additional incentives or improvements to maintain user engagement, etc.
In the case of Optimism and Arbitrum, the airdrops not only increased the number of unique addresses and total locked value on the platform, but also had a substantial impact on the price of their respective tokens. However, the long-term impact on user behavior and the broader Layer-2 ecosystem still requires further study.
As the cryptocurrency space continues to grow, it will be interesting to see how airdrops and similar strategies are used and refined to boost user engagement and project success. As these case studies demonstrate, effectively leveraging airdrops requires incentivizing users in the short term while also planning for long-term goals of sustainable growth and development. Understanding this balance will be critical for future projects looking to leverage airdrops as part of their growth strategy.
