Airdrops are a novel concept in the crypto ecosystem designed to put a protocol's token in the hands of the protocol's patrons. Oftentimes, airdrops are regarded as free money but in reality, it signifies ownership which comes with responsibility, especially if they are governance tokens.
Protocols keep scratching heads to put the tokens in the wallets of addresses who might have the best interest of the protocol at heart searching for the best way to do airdrops. The volume-based retroactive airdrop is quite the most popular in recent times where protocol users are rewarded pro-rata according to the volume of transactions made on the protocol.
Now, Paraswap, which has been in existence since 2019, decided to take a slightly different path to award airdrops. Why? Because airdrops have been under constant Sybil attack in recent times, take this case for instance were a researcher at Divergence Ventures Sybil-farmed one of the venture firm’s own portfolio companies, Ribbon Finance.
Paraswap took the pains to implement a type of airdrop that filtered out the random accounts trying to game the system as they only wanted to reward active users. Eventually, after going through the full filtering algorithm described in this medium post, Paraswap settled on 20,000 active users who were awarded the airdrop.
Was It An Effective Airdrop Design?
From an objective point of view, there is only one way to arrive at the conclusion of whether it was an effective airdrop or not, and that is by looking at the interest of the Paraswap DAO. First and foremost, Paraswap would want recipients of the DAO to actively participate in governance decisions that affect regular users. This is why they went all out to cut out whales and Sybil farmers that are likely to play in their own interests.
So statistically, we can determine whether it was effective or not by looking at the percentage of the airdrop recipients that are still holding their $PSP tokens. We know that 20,000 addresses were eligible to claim but how many actually claimed? A quick query shows us that 13,772 Ethereum addresses claimed the airdrop.
Now, if you observe the donut chart below, out of the 13,772 that claimed the airdrop, only 7.89% were still holding >1,000 $PSP tokens as of 15 May 2022. We used 1,000 $PSP tokens as the benchmark because the least airdropped amount to users was 5.2k tokens. So it makes sense to say the a user must have at least 1,000 to be considered to still hold.
With this data can we conclude whether it was an effective airdrop mechanism? I believe that numbers don't lie, and if more than 90% of airdrop recipients have sold the tokens in less than a year, then it means that the active users of the Paraswap protocol do not care about governance.
Also, by virtue of the fact that the airdrop recipients were active users of Paraswap which is a decentralised exchange (DEX) aggregator, they were naturally going to sell the tokens. Therefore, we can conclude that if the motives of Paraswap were to make their active users participate in governance then, the airdrop design failed. However, if Paraswap's intentions were to distribute free money, then I believe the airdrop design put it in the wallets of its passionate users.
We can further break down $PSP airdrop recipients by paper/diamond hands. Paper hands are addresses that have sold some or all of their tokens while diamond hands are those that have claimed but never sold a penny. The donut chart below presents a percentage of each category.
657 wallets, out of the total are diamond hands which the Paraswap team can be proud of. These wallets never sold, at least just yet. Diamond hands represent 4.77% of airdrop claimers. In a nutshell, I believe that although airdrops can play important roles in the success of a protocol token, the ultimate success of the token will depend on the value the protocol inherently provides. This will determine whether the token is worth holding for the long term or not.