The Golden Era of Airdrops: A Letdown in Performance

Despite the abundance of token airdrop projects in April, their performance upon listing has been dismal. Investors are increasingly wary of these "free" tokens, as evidenced by the consistent downward trend in their price charts. Reasons for this include excessively high valuations, the lack of holding incentives for airdrop recipients, and the dumping pressure from those eager to sell their tokens. The crypto market's experienced investors are reluctant to invest in projects with valuations in the billions, especially when the circulating supply is low and the tokenomics raise concerns. Furthermore, some suspect that project teams may intentionally set high valuations to manipulate the market and benefit from early OTC sales. As investors grow more discerning, the efficacy of token airdrops as a marketing strategy may be waning.

The Golden Era of Airdrops: A Disappointing Performance

April 2024 has witnessed a surge in token airdrops, with projects such as Ethena, Wormhole, Parcl, Tensor, Omni Network, Renzo, Kamino, EIGEN, Avail, and friend.tech making their debuts. However, despite the excitement surrounding these events, the performance of these airdropped tokens has been largely underwhelming.

Upon listing, the prices of these tokens have plummeted, with a consistent downward trend across the board. Kamino (KMNO), the governance token of Solana-based lending platform, lost over 63% within an hour of its launch as airdrop recipients rushed to sell their tokens. Renzo's token (REZ) faced a similar fate, dropping 40% in just 24 hours.

The reasons behind this poor performance are multifaceted. Many airdrop recipients are primarily motivated by the prospect of free tokens, which they intend to sell for a profit. This lack of long-term commitment leads to a sell-off as soon as the tokens are acquired.

Simultaneously, other investors are hesitant to purchase airdropped tokens at their current prices, recognizing the downward pressure exerted by the selling airdrop recipients. They are likely to wait until this selling pressure subsides before considering potential investments.

Exorbitant valuations further exacerbate the situation. Wormhole (W) and Ethena (ENA) launched with a circulating supply of 18% and 9.5%, respectively. However, according to CoinGecko, W has a fully diluted valuation (FDV) of over $6 billion, while ENA's FDV stands at $11 billion.

Low circulating supply can temporarily inflate prices, but as more tokens are unlocked and released into circulation over time, the price is likely to continue its downward trajectory. Investors are increasingly savvy, making them less inclined to purchase tokens from projects with FDV in the billions of dollars.

Marc Weinstein, investment partner at Mechanism Capital, succinctly stated, "Investors don't believe that a project with an 11-figure launch valuation is likely to go up in value."

The inflated valuations can be attributed in part to the hype surrounding newly launched projects. Ethena, Wormhole, Tensor, and EIGEN have all been heavily marketed with buzzwords that appeal to investors and speculators alike.

However, sources suggest that some projects may be intentionally launching with high FDV. An anonymous source told DL News that "the most optimistic assumption is that they want to use their token as a currency, and a higher FDV means their treasury is worth more."

Weinstein also speculates that "if you start at $20 billion and you go down 95% in a bear market, you're still a $2 billion project."

Furthermore, controversies surrounding tokenomics, such as those experienced by EigenLayer, Renzo, and Starknet, have cast doubt on the authenticity of airdrops.

Investors have grown wary of such tactics and are not easily swayed by promises of free tokens. The poor performance of airdropped tokens is a reflection of this skepticism.

Despite this, airdrop tokens remain a prevalent method for new projects to attract users. The symbiotic relationship between airdrop hunters and projects is essential to maintaining market equilibrium.

However, projects must strike a balance between creating hype and maintaining credibility. The golden era of airdrops will only continue if airdropped tokens can deliver on their promises and avoid the pitfalls that have plagued recent launches.