How To Bootstrap Dapps and Protocols Without An ICO
Authors: David A. Johnston, Mark Thorsen, Henry Liu, Erik Kuebler & Grace Torrellas
Technical Reviewers: Kyle Samani, Tushar Jain, & Nathan Johnston
This paper proposes best practices for “Smartdrops”, as a means of fast-tracking community growth, raising brand awareness and incentivizing early adopters that are highly aligned with the values of your project. Intelligently targeting the recipients of an airdrop and giving away a meaningful amount of value provides large benefits to your project, primarily: increased network effect and allowing many new users to access your technology.
A Smartdrop is a permissionless way of introducing new technology to users of protocols with established network effects. It takes the technology of a new Dapp or protocol — in the form of a token — and makes it available to a substantial community of users on the existing protocol on day one.
For background on the topic of Airdrops generally, check out “WTF is an Airdrop a Detailed Guide to Free Cryptocurrency”:
History of “Dumb Airdrops”
Prior to cryptocurrency, if a technologist wanted to build a community around his or her new application, the technologist would need to build that community from scratch. They would raise capital, hire a marketing team, run ads on Google or Facebook and generally spend a lot of time getting people to pay attention to their new application.
Since the early years of public blockchains, projects have been experimenting with giveaways of new tokens to grow communities. In 2017, OmiseGo launched an airdrop for its OMG tokens. They transferred OMG to over 460,000 people whose ETH addresses had a balance of more than 0.1 ETH. This broad, un-targeted giveaway of tokens meant to create interest in the OmiseGo platform has been copied by thousands of projects since. However, it is not without flaws.
Because broad, Dumb Airdrops aren’t targeted, they may be viewed by recipients as spam, or tracked for the wrong reasons. In some cases, users spend time tracking Dumb Airdrops for the sole purpose of selling “free” tokens, rather than using them or learning about their use-cases. As a result, teams issuing Dumb Airdrops send their tokens into the wallets of users who aren’t interested in using their tokens or building a new community. Although teams are issuing Dumb Airdrops to build community and drive network growth, they are met with opposite results. Dumb Airdrops are a waste of tokens.
Unlike traditional Dumb Airdrops, Smartdrops leverage the public nature of on-chain data to target users. Because blockchains are essentially free, open-source APIs, the only requirements for connecting to and scraping them is code. Thus, Smartdrops are a more efficient means of new user acquisition and community building.
Perhaps Smartdrops of the future will combine “big data” blockchain analytics and artificial intelligence sorting mechanisms to accurately parse through millions of users, and recommend those likely to use a new Dapp or protocol’s token. We foresee that that the majority of future Dapp and protocol’s “marketing” budgets will involve Smartdrops, and expect Smartdrop service providers to become the “Google Analytics” of the blockchain technology industry.
New Methods For Smarter Airdrops
Quantstamp (QSP): To incentivize community engagement, contributions, and new user acquisition, Quantstamp utilized their “Proof of Care” campaign. Quantstamp quantified users’ engagement based on an equation tracking “active project contribution + community involvement + wallet tracking algorithm + history of support.” Users received “POC” scores based on their engagement, and were rewarded tokens proportional to score.
Polymath (POLY): Polymath rewarded early users for joining their Telegram channel, providing a ETH wallet address, and filling out a short survey about themselves. Polymath quickly gained 40,000+ members in their Telegram community as word spread about the Airdrop.
DFINITY (DFN): Dfinity announced that they will be sending approximately $35MM worth of their DFN tokens to their community of future users, prioritizing early backers. Recipients will be able to use their DFN tokens to experiment with the Dfinity platform and build applications when the Dfinity network launches.
Best Practices Emerging For “Smartdrops”
- Audience Matters, Carefully Select the Recipients: — The key to a successful airdrop is focusing on users who are likely to deeply engage with your project and add value to your community. If you are targeting a community of decentralized exchange developers, consider 0X Protocol (ZRX) holders as recipients; if you are building a community of merchants, consider Bitcoin Cash, DASH, or Litecoin users. In the case of Polymath, a securities token trading platform, they filtered for investors, other securities issuers, and so forth. Strategically send your tokens to holders of competing Dapp or protocol tokens as part of the overall Smartdrop. Holders of competing Dapp or protocol tokens have already been filtered for product/market fit — they have already demonstrated they want to hold value in your vertical, so they are likely to be in your target demographic. Smartdrops should exclude exchanges, competing foundations, high transaction frequency addresses, mixers, shapeshifters, and other addresses that aren’t conducive to the Dapp or protocol’s long term success.
- Focus on Quality Over Quantity: — The reason why Google and Facebook are worth $600+ Billion is because of their ability to target the right audience for advertisers. Blockchain protocols can learn from the traditional digital advertising world and be more selective about who they target. We should always focus on quality over quantity when it comes to community members that are driving long-term value.
- Make it Worth While: Do A BIG Airdrop, Reward Users With Real Value Not A Rounding Error — Airdrop a meaningful amount of value in tokens to the new users. For instance, Polymath provided several hundred dollars in value (250 POLY) to those who signed up for their Telegram group, effectively joining the community of Polymath users. The total value of your airdrop should be in the tens of millions of dollars in value and represent a large part of the total network value. Thus if you pick a narrow target group (tens or hundreds of thousands) the benefit will be a significant amount per recipient. Invest directly in your future adopters and users instead of spending that value on inefficient marketing campaigns.
- Make It Easy, Make It Verifiable — Create a smooth onboarding process for people interested in joining your community to prove their identity. Make the steps to get involved straightforward (E.g. a Google Form, CoinList interface, or TRM API) and pick questions that generate useful, verifiable information such as email addresses, Telegram usernames, and so forth.
- Reward Users Aligned With Your Projects Values — If your Dapp is all about privacy then focus on users likely to be interested in privacy features. Move beyond single project tribalism and attract people who support Dapps with similar values.
- Incentivize Milestone-Based Distributions — Also known as bounty-campaigns, can be part of a targeted Smartdrop, protocols can reward new users with gamified, programmable incentives for completing tasks such as: downloading a Dapp, referring friends, unlocking certain achievements. In essence, this is the next-generation of campaigns similar to Uber’s “refer a friend for $5 off of your next ride”.
These milestone-based distributions don’t have to be limited to a particular time-frame, will enable protocols to consistently engage with new users, and will drive user adoption. Milestone distributions can also scale based on time — first-moving users receive larger rewards.
Benefits for The Existing Token Networks
- Faster Innovation Cycles: Dapps and protocols can leverage this quick path to gaining network effects for their new technologies. When a new feature, such as zero knowledge proofs, multisignature, or other, is invented, this feature can be Smartdropped to communities of existing protocols that share aligned interests or principles. Compared to preparing a token sale or working through establishing a company, the Smartdrop model can be executed in a matter of weeks, instead of months.
- Less Market Volatility: As Smartdrops increase, holders of “blue chip” cryptos could receive “blue chip” like benefits: Smartdrops of new tokens, a more stable value, and a lower volatility (relative to the market). Smartdrops incentivize long-term holding of “blue chip” tokens because holders receive the benefits of new features Smartdropped to their community.
- Keeping The Community Together: Instead of incentivizing a never-ending series of forks of a community, if a network embraces new Smartdrops, it could increase community stickiness. Because Smartdrops bring in new ideas and technologies to existing projects, community members might be excited to work for an existing project that receives and experiments with an inflow of new ideas and technologies via Smartdrops. We are already starting to see examples of these new projects such as the Distributed Business Accelerator platform (DBA).
How To Prepare For A Smartdrop
- Announce your project has selected the Smartdrop method for distribution of a portion of its tokens. That way interested developers and other community members can join and contribute to the software of the Dapp and earn part of the community reward.
- Schedule a date for the Smartdrop to take place and provide details for people to participate and join the community.
- Identify the Smartdrop targeted networks.
- Communicate guidelines, including a list of milestone-based incentives for Smartdrop participants.
Example Distribution Via A Smartdrop For A New Privacy Coin:
15% of tokens distributed to community members who hold meetups, evangelize the project, and preform promotion or education related tasks.
25% of tokens distributed to developers who program the Dapp.
60% of tokens distributed to members of the Zcash community.
Use The Right Tools For Compliance, Smart Contracts, & Community Management
Earn.com — Owned by Coinbase, can assist in creating a list of users who opt into an Airdrop.
CoinList.co — Owned by Angellist.co, is focused on accredited investors.
TRM — Owned by TRM Labs, an API for Smartdrops.
Abacus Protocol — One line of code to call up their compliance tools / smart contracts for developers building financial Dapps.
Xpo.Network — Does the job qualifying and rewarding community members through community growth oriented tasks.
Downside & Risks:
Gaming The System:
People WILL attempt to game & abuse this distribution system. Plan accordingly and try and maximize the good actors who get access to the Smartdrop tokens.
Shallow Buy In:
Projects could end up as “happy meal” promotion toys that are forgotten quickly and nobody wants them — if it’s easy to get these tokens, there might not be much real buy in from new users.
Unknown Token Value:
Because the Smartdrop distribution method isn’t a sale and thus isn’t priced, the tokens lack an established price at the time they are generated. This pricing will have to emerge naturally from the secondary markets that are formed by community members interested in trading the tokens.
By skipping a token sale, the new Dapp is counting on the market to establish a value for its tokens and those less traded, more illiquid tokens to then fund its development, instead of gathering a more liquid currency type token such as Ethereum.
Around the token value and asset classification: be warned that even giving away tokens is not necessarily free from scrutiny under securities, money transmission or other laws. This is more specific to US based consumers. See compliance tools section above.
- There is real potential for Smartdrops to become a mainstay of how decentralized applications distribute a majority of their tokens and thus quickly bootstrap a large pool of vested and engaged community members in a very short amount of time.
- Let’s rally together the broader crypto & blockchain community to make Smartdrops effective and promote best practices while leveraging the use of new tools, platforms and protocols. We can trigger a new wave of permissionless innovation in the crypto community.