How FNDX thinks about airdrops
The FNDX team was asked: what do we think about token airdrops? Are they free gifts? Web3 spam? An engagement mechanism? Something more than meets the eye? I was asked this on Twitter recently, and here was my reply:
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Preface: here's a quick primer on airdrops, courtesy the excellent Coindesk:
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We think airdrops are potentially a great mechanism to incentivise the various roles that make up a a decentralised project. Chris at A16Z wrote about his take some time ago:
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Many token mechanics need participants to provide the actual service, which involves staking tokens for the right to provide that service. Eg Chainlink, to provide data for an oracle network. (The staking is necessary to align incentives, both carrot and stick)
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It also needs actual users of the service who pay in that same currency ie the LINK token in the case of Chainlink. And you have delegators -- ordinary token holders who "vote" for specific service providers by bolstering their stakes with tokens.
There could be other roles too, but this is the bare-bones "Work Token" model. There are other models, including the Mint and Burn Equilibrium model described here: "New Models for Utility Tokens" (2018)
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Over and above actual usage, a project also needs traders/speculators to incentivise price discovery and liquidity for users. It could have distributed, open development (the bazaar model of open source): The Cathedral and the Bazaar (1999):
Image via this 2020 book review.
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If it's a platform like an L1/L2/inter blockchain communication protocol or otherwise, it needs developers. All of these need to be incentivised. Airdrops, or the distribution of the (limited) supply of tokens, is the most *blockchain-native* method to implement incentives.
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Airdrops need to be designed well though -- there's no one size fits all. But broadly you want to reward early adopters of each of the roles above. Here's how the NFT marketplace Blur did it:
Twitter thread on Blur airdrop reward mechanism:
The FNDX Fundamentals approach to airdrops is fairly simple:
If a project in the FNDX Fundamentals portfolio airdrops tokens to existing token holders without negatively affecting its token mechanics or value creation potential, the Fundamentals strategy will hold the tokens as part of tokens under custody.
If such an airdrop does negatively affect token mechanics or value creation, the strategy will hold those tokens but re-evaluate the project as a whole. Any decision to exit fully or partially will be made considering the airdropped tokens as part of tokens under custody.
At this point, FNDX does not plan to swap received airdropped tokens for stablecoins or other tokens in its portfolio – all the airdrop does is increase, proportionally, the share of the project within the FNDX Fundamentals portfollio.
Finally, FNDX will not use a project’s service as part of its infrastructure solely to be eligible for an airdrop in the hope that the project issues tokens at a later point.
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Featured image from the Dall-E gallery.