Starting from Blur, we explore the actual impact of airdrops on the NFT market

Original title: Beyond Hype: Understanding the Impact of Airdrops on NFT Marketplace Performance
Original author: J.Hackworth
Compiled by: Qianwen, ChainCatcher
 
Introduction
 
The NFT market is constantly changing. Over the past year, OpenSea has felt the pressure of its emerging competitors gradually taking more and more market share. On a weekly basis, LooksRare, X2Y2, Sudoswap, and Blur have reduced OpenSea's NFT volume market share from 99% to 50-30%.
NFT market platform market share on a weekly basis
While OpenSea may be one of the darlings of the web3 space, it lacks one thing that every other competitor has: a token. This leaves a perfect opportunity for competitors to steal customers by offering them free cash via token airdrops. While the above chart may show that airdropping tokens to users worked, on-chain data may suggest the opposite. While its competitors’ trading volumes are increasing, OpenSea’s market share of active users has slightly decreased.
Active users in the NFT market
We took a deep dive into the airdrop data for LooksRare, X2Y2, and Blur to understand how each airdrop performed on their respective markets. All analytics data can be viewed on the Dune dashboard.
 
How valuable are NFT customers?
 
Before diving into the airdrop, it’s first necessary to understand what a wallet is worth when calculating customer lifetime value (CLV). This allows protocols to appropriately adjust token incentives as part of customer acquisition cost (CAC). Here are last year’s transaction volume and platform fee data, broken down by market:
NFT volume and fee percentage over the past year as of 19/02/23
As you can see, most users generate very little fees and trading volume. It’s worth noting that while the percentage of wallet volume for Blur and OpenSea is fairly close, the top 1% of traders are the real differentiator:
Blur 99th Percentile: $207K in Volume
OpenSea 99th Percentile: $158K in Volume
The 1% of traders are the key drivers of the NFT market. Blur attracted top traders with its recent airdrop and zero fees. OpenSea also launched a zero-fee mechanism to counter the growing threat of Blur. However, it is unclear how these platforms will generate revenue at this stage. Airdropping tokens to users who cannot generate huge returns does not seem to be a reasonable marketing strategy. The analysis below details how LooksRare and X2Y2 airdropped large amounts of tokens to users who ultimately never generated any revenue for their platforms.
 
LooksRare & X2Y2: Vampire Attack
 
At the beginning of 2022, OpenSea was in the limelight. Its monthly trading volume was as high as $4 billion, and it had an active user share close to 99%. However, OpenSea did not intend to issue tokens, but planned to go public, which made many people unhappy.
LooksRare first came into view in early January, targeting OpenSea users who traded more than 3 ETH between March and December 2021. More than 124,000 users were eligible for the airdrop, and 67% of the addresses received it. The distribution of LooksRare tokens is as follows, with users receiving 125-10,000 $LOOKS.
$LOOKS distribution and USD valuation at the time of airdrop
On the first day of trading, $LOOKS was trading at around $2.1, with an estimated total airdrop of $206 million. In a few weeks, LooksRare’s tokens increased by 180%, growing from 0 to over $20 billion.
LooksRare Cumulative Volume by Hildobby
X2Y2 was launched a little over a month later. Any user who has traded NFTs on OpenSea before January 1, 2022 is eligible to receive space. X2Y2 airdropped 120 million tokens, and the claim rate was low, with only 23% of the tokens claimed. The remaining unclaimed tokens are permanently locked in the contract.
X2Y2 airdrop allocations by number of tokens received
 
How do wallets affect airdrops?
 
From the $UNI airdrop, most of the original airdrop holders eventually "dumped" their tokens. In simple terms, this is equivalent to a wallet that does not stake or hold any tokens. LooksRare and X2Y2 are no exception. More than 59% of $LOOKS and 85% of $X2Y2 airdrop wallets eventually dumped their tokens.
$LOOKS Airdrop Wallet: Hold/Discard Ratio
$X2Y2 Airdrop Wallet: Holding/Discarding Ratio
The figures for other airdropped tokens may be lower, but since LooksRare and X2Y2 offer profitable staking rewards, many users are leveraging their tokens to make a profit.
It is also worth noting that the “dumping” has occurred to varying degrees in $LOOKS and $X2Y2. While some argue that whales holding large amounts of tokens have more incentive to hold onto tokens than smaller wallet holders, this argument does not hold true.
Percentage of holdings and discards by $LOOKs airdrop amount
 
Converting airdroppers into buyers
 
Although the LooksRare airdrop requires users to list their NFTs on LooksRare in order to claim the tokens, most wallets never end up actually trading on the platform. In fact, the conversion rate for purchasing NFTs is only 24%.
The probability that a $LOOKS airdrop recipient will choose to purchase 1 NFT
The X2Y2 conversion rate is better, but still not ideal.
The probability that an X2Y2 airdrop recipient will choose to purchase 1 NFT
While listing NFTs puts NFTs on the market that can be purchased, many wallets don’t actually even sell the NFTs and withdraw their NFTs after claiming the airdrop. By only requiring an NFT to be listed, X2Y2 and LooksRare missed out on additional revenue they could have earned from users.
The retention rate of airdropped wallets on LooksRare is less than 10% within 4 months. One year after the airdrop, only 0.2% of airdroppers are still active.
Active airdrop holders’ percentage and $LOOKs airdrop holders’ retention rate
The problem with distributing tokens in large airdrops is that many users will never interact with the platform without further incentives, so smaller airdrops may be more effective in getting users to participate and use the platform.
 
Airdroppers V.S. Others Using the Platform
 
The remaining small number of airdrop wallets are very loyal. On LooksRare, 20-30% of weekly trading volume comes from airdroppers, and about 25% of weekly active buyers are airdroppers.
X2Y2 also has similar indicators for airdrop activity and trading volume:
 
Blur: A new paradigm for airdrops?
 
Blur intends to address the shortcomings of previous NFT markets. Like previous products, it plans to airdrop tokens to users, but in a sophisticated way. The airdrop will be carried out in three rounds:
Round 1: Users who bought or sold NFTs in the past 6 months
Round 2: Users actively listing NFTs on Blur
Round 3: Users bidding on Blur
Although Blur cast a wide net to target users, only a small number of eligible Blur addresses ended up actually using the platform. However, Blur's related indicators soared as traders wanted to get as much airdrop as possible.
41% of Blur’s total users purchased NFTs prior to launch. These wallets tend to account for the majority of transactions on the platform.
Since Blur’s main target audience is OpenSea users, in order to make users loyal to the platform, Blur provides them with additional rewards. For addresses that use both OpenSea and Blur, most addresses end up spending more on OpenSea after Blur was launched.
Percentage of addresses that spent more on Blur than OpenSea since launch
Blur’s penetration of OpenSea’s user base is outstanding. This does suggest that providing token rewards via an airdrop model is effective, especially over a long period of time.
With the Blur airdrop live and 360 million tokens distributed, the current value of its airdrop is estimated to be $288 million (assuming an average price of $0.8 on the first day of trading).
$BLUR Airdrop Distribution
However, as we expected, many people have sold or transferred the airdrop out of their wallets. Only 21% of addresses have retained their $BLUR airdrop.
$BLUR Airdrop: Hold/Drop Ratio
It is too early to declare Blur and the airdrop in general a success. One metric worth considering is the increase in the number of active addresses after the airdrop, which currently stands at 31%. On the other hand, users who dumped their tokens or remained inactive show lower activity rates. Blur's performance so far suggests that the platform is gaining users, perhaps because another airdrop is imminent.
Number and percentage of wallets that have purchased NFTs on Blur after the airdrop
 
Why is Blur so popular?
 
Blur’s airdrop did bring a lot of buzz to the platform, and trading volume soared. Many people speculated that the airdrop would lead to the demise of OpenSea. Others believe that professional traders are driving all the trading volume in order to get more airdrop rewards. To investigate this theory, we analyzed the total trading volume, profits, and wash trading of Blur’s top traders.
The trading volume on the Blur platform shows a rather uneven distribution, with nearly 20% of the total purchases being completed by 25 addresses. 45% of the purchases come from the top 250 users, showing the significant contribution of powerful users to the platform's trading volume. In contrast, the top 250 addresses on OpenSea only account for 11% of the total trading volume.
Blur's powerful users: number and cumulative number by user
The total amount of airdrops claimed on the Blur platform is closely related to trading volume. Traders are able to receive $BLUR rewards of 2%-10% of their total trading volume. Some addresses have even claimed millions of dollars in airdrops. Not including NFTs in their wallets, many of these users can make huge profits just by trading on the platform and claiming airdrops (sell volume - buy volume + airdrops). If airdrops are taken into account, the number of "profitable traders" increases by another 20%.
User profitability on Blur
Thanks to the airdrop, top traders on the platform saw an astonishing 1000%+ increase in their PnL, which also reflects the attractiveness of Blur relative to OpenSea.
 
Wash Trading on Blur
 
While Blur’s overall wash trading percentage is relatively low at around 11%, the top traders on the platform engage in wash trading to maximize their gains. Analysis shows that the top 5 traders’ wash trading volume accounts for 37% of their total trading volume, and most of the top traders engage in some form of wash trading.
Wash trading percentage of Blur's top users
Even well-known BLUR wallets that claimed millions of dollars in rewards had more than 25% of their Blur volume flagged as wash trading. More than 90% of wash trading wallets claimed at least $100,000 in $BLUR rewards. While wash trading is less prevalent among regular users, the involvement of top traders who drive trades on the platform and claim the largest rewards raises questions about the fairness of the airdrop and whether there is manipulation of metrics such as trading volume.
The BLUR airdrop has proven to be an effective strategy to generate buzz and attract new users to the platform. However, many users quickly abandoned the token. Blur’s high trading volume and whether it can replace OpenSea as a dominant player have also been questioned, as the system is manipulated by traders who trade only to maximize returns.
 
summary
 
The NFT market has witnessed a series of airdrops over the past year, but the success of these airdrops is questionable. A closer look at the airdrops of $LOOKS, $X2Y2, and $BLUR tokens shows that a significant sell-off occurred after the airdrops, and user activity dropped sharply after the airdrops. Blur has made significant progress on the airdrop model by introducing multiple rounds of airdrops and related standards, but a small number of people seem to manipulate the entire hype and trading volume. From the data, we can draw the following conclusions:
Large airdrops can backfire because users tend to sell the tokens after receiving them, and the supply of tokens is too abundant.
Conducting multiple rounds of airdrops can be effective in order to retain users’ attention, as Blur did successfully in converting one-time users into loyal customers.
A one-size-fits-all approach to airdrops doesn’t work. On the contrary, using on-chain data to motivate rewards and segment users can attract high-quality users and significantly improve the success rate of airdrops.
The history of airdrops may be filled with disappointment, but continued progress also promotes long-term alignment of interests between protocols and users.