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Over the past few years, airdrops and points systems have been the lifeblood of cryptocurrency user acquisition. Crypto projects had no alternatives. The project faced difficult issues after an initial coin offering boom sparked severe regulatory backlash. The question was how could tokens be put into the hands of users without selling what could be considered unregistered securities? Airdrop emerged as the answer.
summary
Airdrops were a regulatory workaround and not a healthy market. Airdrops emerged after ICOs became legally harmful, distorting incentives, rewarding exploitative practices, and undermining real product-market fit. Regulated ICOs are back and incentives are being reset. Clearer rules in the US and platforms like Coinbase that enable compliant sales allow projects to raise funding directly from users, restore price discovery, and reduce VC-driven distortions. Crypto capital markets are maturing, and transparent funding and real investor skin-in-the-game will replace the era of “free money” while airdrops will move toward royalty and governance rewards.
Those days are coming to an end. Changes in US regulations have opened the door for the return of compliant and transparent ICOs. Don’t expect the same enthusiasm as in 2017 (the industry has matured significantly since then). On the contrary, the crypto sector may correct some of its distortions and develop a more disciplined capital market.
The return of ICO
Coinbase’s announcement of a regulated ICO platform for US investors was the clearest signal yet that US regulators are willing to re-open public token sales under structured and compliant terms. This is a far cry from the nostalgic resurgence of freebies in 2017, and a sign that ICOs done properly are no longer taboo.
The market reacted immediately. MegaETH’s ICO was a huge success and showed that retailer demand for well-structured token offerings remains huge. Plasma also saw huge demand in June. Although Monad’s ICO took longer than planned as Coinbase’s first ICO, it still received significant attention from the industry. Being able to conduct public token sales again has changed everything about cryptocurrency funding.
Why did Airdrop exist in the first place?
Since 2017, the ICO situation has become radioactive. Almost overnight, the public sale of tokens became fraught with legal risks, major exchanges refused to list tokens launched through the public sale, and U.S. investors were effectively excluded from early-stage participation.
Still, developers still want to expand the network and users still want tokens. Cryptocurrency companies then created an improvised workaround in the form of airdrops. If a token is transferred without being sold, it will probably not be treated as a security. It certainly seemed safer than the ICO model.
Later, a new element was added to the scheme: a points system. The project didn’t even have to actually airdrop the tokens. Instead, users could be rewarded with abstract “points” that suggested future financial benefits. These systems have allowed projects to build hype and usage without crossing legal lines. It worked for a time, but it created distortions in the market.
Incentive issues
Companies were unable to raise funds from the public, so they relied heavily on venture capital. VCs clearly wanted a liquidity event, and crypto projects were pressured into a complex cycle of launching unfinished products, using points to attract “users,” and then airdropping tokens months later to satisfy investors.
Incentives had been completely destroyed. Airdrop recipients (often referred to as “farmers”) had no loyalty to the project they received tokens from. VCs didn’t care as much about product-market fit as they did about unlocking tokens. Fake KPI optimized protocol team to justify valuation and get exchange listing for day one sales liquidity. And real users have been drowned out by extractive practices.
In other words, the long-term success of the project was irrelevant to the VCs and airdrop recipients. It was all free money. After unlocking liquidity or receiving an airdrop, the best bet was to sell the tokens and move on to the next project. You can’t build anything of lasting value.
What this new ICO era will unleash
Regulated ICOs would give cryptocurrencies the opportunity to correct those distortions and rebalance the sector’s economic foundations. This new wave is nothing like 2017. At the time, ICOs only needed a white paper to attract investors. Crypto market participants are now much better educated and regulators have set clear boundaries.
With the return of ICOs, crypto companies will no longer be forced to over-optimize for the benefit of VCs. You can collect donations directly from people who believe in your product. Token holders also become real stakeholders. They are invested in the project, so they are truly in the game.
The market will finally have true price discovery. The real signal is how much the market is willing to pay for a particular new token. Also, crypto projects no longer waste resources on complex airdrop campaigns. You can focus that attention on product design and revenue.
Still, as we have seen with Monad, an ICO does not necessarily mean the end of the token unlock schedule (which was a common feature in airdrops). Some projects will still experience significant selling pressure on their tokens for an extended period of time.
In short, a compliant public financing mechanism would alleviate some (but not all) of the major distortions that crypto capital markets suffer from. Ecosystem health will definitely improve.
Airdrop has various functions
Airdrops and points systems are innovations in their own right and will never go away completely. You should expect these to be used as part of a loyalty program. For example, to reward investors who participate in the governance of the protocol or who have already held project tokens for a significant period of time.
The end of the airdrop season is a sign of the maturity of cryptocurrencies. The sector is finally building a real capital markets infrastructure, including regulated financing, transparent pricing, investor protection, and aligned incentives. Investors will no longer be able to get free money, but they will be able to invest in cryptocurrency projects without having to worry as much about losing incentives.
