Empire Newsletter: What the airdrop meta says about crypto

Today, enjoy the Empire newsletter on Blockworks.co. Tomorrow, get the news delivered directly to your inbox. Subscribe to the Empire newsletter.

Big Farma

It was the Blast of times, it was the Blurst of times.

The long-awaited airdrop for degen-friendly Ethereum layer-2 Blast has so far gone slightly better than NFT marketplace Blur’s did.

Both projects were conceived by the same developer, Tieshun Roquerre, better known as Pacman. Blast’s chief selling point is that it can provide native ETH yield through rebasing while Blur overhauled NFT markets by enabling higher frequency trades.

BLAST is currently sitting not far from its first trade price, giving it a $430 million market cap with $2.5 billion of fully diluted value. Not as high as some anticipated, but still in the top 200.

*Blast’s weekly active addresses hit an all-time high before the airdrop, close to half a million. Blur meanwhile has never seen more than 70,000 weekly traders*

While there were the usual grumbles from airdrop farmers, at least Blast’s token has been somewhat stable… for now.

BLUR was otherwise extremely volatile when it first hit certain exchanges on Valentine’s Day last year. As recounted by Kaiko at the time, its first trade price was $0.10 on Huobi, where it immediately surged to $10, a price quickly mirrored by markets on OKX.

BLUR hit Uniswap three minutes later. DEX traders had meanwhile priced it at $0.29. Coinbase joined in after another 20 minutes, where it changed hands for $0.88.

It took a full hour after its first trade for markets to agree that BLUR was worth less than a dollar.

While some divergence between markets for BLAST has occurred — CoinGecko reports BLAST is currently trading 14% below an all-time high of $0.02918 — it’s got nothing on BLUR’s 100x pump to 95% dump.

*Blast’s points program was apparently so popular that it quickly rose to Ethereum’s no. 2 layer-2 for TVL — but has since been eclipsed by Base*

But anything could happen to BLAST from here. It’s launching amid a tough time for crypto markets in general, one which hasn’t been so kind to airdropped tokens, especially ones with low floats and high fully-diluted values.

It’s tempting to look at what’s happened to BLUR for hints. BLAST and BLUR, both governance tokens, do share incentive mechanics but they’re different platforms serving different use cases, so it doesn’t make complete sense to compare the two directly.

BLUR will inevitably be tied to the ebbs and flows of NFT market activity, while BLAST is more-or-less chained to the layer-2 scaling narrative surrounding Ethereum.

Still, continuous token unlocks and vesting schedules seem to have weighed on BLUR, at least far more than any airdrop claim windows.

*If you exclude the initial pump on Huobi, BLUR is down over 75% on its first Coinbase trade price*

BLUR’s circulating supply has inflated from 364.2 million at launch to over 1.7 billion today. And while it recovered earlier this year from last June’s major 40% supply unlock, it has since retraced.

BLAST has a very similar unlock schedule. Right now, about 17.2 billion tokens are in circulation. By this time next year there will be 42.7 billion, almost three times as many.

Best case scenario is that the market picks up again between now and then — bringing in enough liquidity to absorb those meaty emissions.

Either way, BLAST is on track to fulfill arguably its most degenerate use case: testing the limits of what crypto will take in terms of tokenomics and supply inflation.

— David Canellis

Data Center

Nearly 300,000 addresses have claimed the BLAST airdrop so far, with over 90% of the liquid allocation sent out. Additional vested supply is designated for the top 1,000 whales.
The average address received 25,182 BLAST ($638) and the median brought home 844 BLAST ($21.40), per a Dune dashboard.
While Blur’s user count may be down, it still makes up over half of daily NFT trade volumes. OpenSea contributes about 16.5% right now.
BTC and ETH continue trading sideways at just under $61,700 and $3,400 a piece.
Buzzy DeFi tokens are correcting hardest out of the top-100 this week, with BEAM, PENDLE and ENA down over 13%.

Not dead yet

Ah, airdrops.

Instead of focusing on a single project, I want to zoom out and talk about the state of airdrops as it stands.

Airdrops, so far this year, have distributed $4 billion. To put that number in comparison, airdrops reached a high of $4.3 billion last year.

Yet it’s not all rainbows and butterflies and people don’t seem thrilled. Sentiment for airdrops seems to have hit a new low (and maybe that’s not a surprise given the current state of bitcoin, ether and altcoins).

K33 analyst David Zimmerman doesn’t necessarily think they’re dead, but they’re definitely wounded. In a research report Wednesday, he focused on the outrage around airdrops.

I asked him how teams could address some of the classic issues surrounding airdrops, and he had two main suggestions: 1) Teams should be more honest and clear about criteria, and 2) allocate more to the users who have been loyal and used the product.

“If airdrop criteria are clearly and explicitly communicated (and adhered to) while teams make a point of rewarding users that take the risk to use the product, things would be more balanced,” he said. “Let’s not forget there have been billions in DeFi hacks and these protocols are nothing without the users (and their capital), so users should be rewarded accordingly.”

The negative sentiment around airdrops may be justified, but perhaps there’s something deeper at play here.

“The reason the backlash is so loud right now has little to do with fairness. It is much simpler than that — the outrage is so loud because the broader altcoin market has been trending down and their portfolios have taken big hits,” Zimmerman wrote.

“Market participants are no longer willing to engage in airdrop farming because the integrity of the implicit protocol-user agreement has been soiled at a time when the market is hitting people’s personal portfolios, resulting in outrage.”

Sure, teams may be able to improve the airdrop programs, but is it worth it when the trust is already broken?

If Zimmerman had his way, he’d like to see the market have a simultaneous product and token launch, he told me.

“If we got this combined with the cessation of the low-float high FDV tokenomics model that many projects like to launch with, that would be better for both users and the health of the industry,” he said.

It’s going to be “tricky” to make improvements, so why not go back to the tried-and-true way of doing things, he further argued.

To circle back on my original question on the lifespan of the airdrop meta, no one should worry about their death any time soon.

Zimmerman expects to keep seeing them pop up in various forms over the next couple of years. If the big VC-backed projects stop implementing the points programs, however, then it may be time to prepare for the funeral.

“I don’t expect this even though I would like to see it happen,” Zimmerman added.

Until then, I look forward to the memes from Crypto Twitter around every airdrop.

— Katherine Ross

The Works

Coinbase disclosed lawsuits against both the SEC and FDIC this morning, Blockworks’ Casey Wagner reported.
State Street and Galaxy Asset Management announced they’re teaming up to offer users exposure to crypto companies.
A Florida man was convicted of home invasions where he and a group of people would kidnap residents to steal their bitcoin and other crypto.
Abra reached a settlement with US states for operating without a license and will refund customers $82 million.
Worldcoin alternative RariMe, offered by Rarimo, launched this morning.

The Riff

Q: What does the airdrop trend say about crypto?

It only shows the lengths crypto will go to avoid the SEC.

OK, it’s probably true that protocols and their cryptocurrencies would be better off in the hands of actual users. And airdrops scaled to points programs do get supplies to those people, even if some percentage leave once the incentives run out.

It used to be that supplies were largely distributed to the general public through initial coin offerings, which tend to be viewed as securities offerings by the SEC. You’d send ETH, for example, in return for a token allocation.

Airdrops, especially ones tied to onchain activity, are essentially initial coin offerings, except instead of ETH, users invest time and energy into the related protocol.

After all, there’s nothing in the Howey test about Sybil farming.

— David Canellis

That crypto’s creative.

No, but really. Take a look at what led us here: Folks claimed crypto was on death’s door after the FTX/Terra fiascos, the entire market’s changed, and — to David’s point — regulators aren’t so friendly (or clear).

I’m inclined to think that airdrops may not exist in the same way in a year or two, because they don’t currently benefit the loyal users they’re supposedly intending to reward. I think this is a temporary solution to a larger problem.

Whether or not the market can return to its traditional offerings, as Zimmerman said he’d like it to, is still unknown. But I applaud the creativity (both from the teams executing the airdrops and Crypto Twitter for the snark and memes).

If we’re not going to see altcoin szns in the next cycles, then crypto has to find some way to pad the portfolios of eager investors without forcing them into memecoins to make a quick buck.

— Katherine Ross

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.