The Cold Start Problem: A Business Paradox
Every new platform or technology faces a cruel paradox. Economists call it the “cold start” problem: supply does not show up without demand, and demand does not show up without supply. For any two sided marketplace, success depends on convincing both groups to participate at the same time, an almost impossible feat at launch. Think of Uber in its early days. Drivers were reluctant to join because there were too few riders. Riders hesitated because there weren’t enough drivers. Airbnb faced the same uphill battle: why list your home on a platform with no guests, and why book a stranger’s home if there are barely any options? The way Web2 giants solved this was blunt but effective: they spent money. Uber showered riders with free trips and paid drivers more than the going rate. For years, the company bled billions in losses, funded by venture capitalists willing to subsidize behavior change. The bet was simple: once habits were formed and network effects entrenched, subsidies could be withdrawn and profits would follow. This strategy worked for Uber, Airbnb, DoorDash, and others. But it required deep pockets and years of patience. Traditionally, platforms have relied on this kind of subsidization, along with aggressive marketing or long periods of patient growth, to set their growth flywheel in motion.
Why Crypto Needed Something Different
In the cryptocurrency world, this challenge is even more acute. A new token or platform often launches with no users, no liquidity, and no trading activity. Without trading, the token has no market value, leaving little incentive for anyone to participate. Unlike ride-hailing apps or home-sharing platforms, crypto projects could not simply hand out coupons or cash subsidies. They needed something native to their ecosystems, something that could bootstrap both supply and demand simultaneously.The innovation that addressed this impasse was the airdrop.
What is an Airdrop?
An airdrop is a mechanism in which tokens are distributed for free, or in exchange for minimal actions, directly to wallets, communities, or the broader public. Sometimes eligibility is based on prior activity (e.g., using a protocol), sometimes on simple tasks (following on Twitter, joining a Telegram channel), and sometimes on broader participation (supporting open-source projects).While initially dismissed as a marketing gimmick, airdrops have since evolved into powerful tools for user acquisition, community building, decentralization, and governance bootstrapping. By rewarding early supporters and distributing ownership widely, they encourage adoption and align incentives between developers and users. These free distributions also create the first spark of economic activity. Recipients now hold tokens that can be traded, swapped, or tested within the new protocol. That participation establishes a market price, which in turn generates liquidity and allows supply and demand to meet. In contrast to Uber’s subsidies for drivers and riders, crypto projects seed both sides of the market simultaneously by giving away units of value that can circulate from day one. The brilliance of the airdrop lies in this transition: from passive ownership to active engagement, where what begins as a giveaway becomes the foundation for a functioning marketplace.
The Spark that creates the Market.
By freely distributing tokens into many hands, projects could jumpstart participation almost overnight. Even if the first wave of trading was largely speculative, it created crucial conditions of demand and supply. Once real transactions began, liquidity followed, and with liquidity came the network effects that attracted more users. This dynamic explains why projects such as Uniswap, ENS, Arbitrum, and Optimism leveraged airdrops: once tokens were circulating, users began to trade, governance frameworks emerged, and communities took shape. Trading activity is central to this process because it produces price discovery. Before a token is traded, it has no agreed upon value. Once people begin buying and selling, even for speculative reasons, a market price emerges. That price attracts attention, first from early adopters and then from analysts, media outlets, and influencers. When do you think bitcoin started taking off? The moment that funny things created from thin air started having a price. Each wave of visibility pulls in more participants, some motivated by speculation and others by genuine belief in the project’s long-term potential. This feedback loop transforms a dormant idea into a visible, liquid, and active marketplace.
Why Ownership Changes the Game
In traditional Web2 platforms, growth subsidies are funded with cash, and once those subsidies disappear, users often drift away. In Web3, by contrast, ownership itself acts as the subsidy. Tokens represent not just short term rewards but a share in the platform’s potential upside. This distinction makes engagement stickier: users are not merely customers but also stakeholders invested in the project’s success. Imagine being an apple shareholder, from that moment onwards you have every incentive to buy the iphone over Samsung. Airdrops turned what was once a cold start problem into a community building event, aligning the incentives of builders and users alike.
Speculation as a necessary bridge!
Critics often dismiss early trading in tokens as pure speculation, likening it to gambling. But speculation in nascent markets serves as a bootstrapping function. In equities, investor enthusiasm for Tesla in 2013–2015 sustained the company long enough to build factories and deliver cars. It was akin to gambling when you are betting a stock that did not have any viability according to most analysts. In crypto, speculative activity around Ethereum in 2016–2017 created the liquidity, attention, and funding base that later enabled the rise of DeFi, NFTs, and Layer-2 ecosystems. In this sense, speculation is not an end in itself but a bridge. A bridge that keeps interest and capital alive until the project’s underlying fundamentals can mature or catch up.
The Central Role of Liquidity!
Liquidity, the ability to enter/exit positions easily is as important as fundamentals for any asset. A liquid asset feels “real” because holders know they can sell it if needed. Illiquid assets, even with potential, are ignored because people fear being stuck. Speculation drives liquidity, and liquidity in turn lowers the psychological barrier for new participants to engage. Excessive speculation can inflate bubbles (doTcom, ICO mania, meme coins). When hype fades before fundamentals arrive, projects collapse. Sustainable adoption requires a transition from early speculation to long term utility. Unlike traditional promotional giveaways, airdrops involve tokens that can be freely traded in financial markets, granting them both economic and symbolic value.
Case Studies: Six Airdrops that shaped Crypto
In September 2020, Uniswap, the largest decentralized exchange on Ethereum, made history by distributing its governance token, UNI, to everyone who had ever used the platform before September 1. Each eligible wallet received 400 UNI tokens, worth about $1,200 at the time but eventually peaking at nearly $18,000 during the bull run of 2021. This airdrop did more than enrich early users; it legitimized decentralized exchanges (DEXs) as community governed infrastructure. Uniswap’s airdrop is now seen as the gold standard in aligning early adopters with long-term protocol growth.
Ethereum Name Service (ENS) represents a different frontier: digital identity. In November 2021, ENS distributed its governance token to anyone who had registered a .eth domain. The amount varied depending on how long and how actively the user had engaged with ENS. At its peak price above $80, the airdrop gave domain holders not just an economic windfall but also direct control over the future of decentralized identity. This marked a turning point in how infrastructure projects treated their users: not as customers, but as citizen owners of the emerging Web3 digital namespace.
Layer-2 solutions like Optimism emerged to tackle Ethereum’s congestion and high fees. In May 2022, Optimism launched its governance token, OP, through a carefully structured airdrop. Unlike simple usage based models, the Optimism airdrop rewarded not only early users of the network but also public goods contributors, GitHub developers, and DAO participants. By peaking at nearly $5 in 2024, OP underscored the financial upside of being an early supporter of Ethereum scalability. The distribution model itself became a case study in how to design inclusive airdrops that go beyond rewarding transactional activity.
If Optimism’s airdrop was thoughtful, Arbitrum’s was colossal. In March 2023, Arbitrum announced the ARB token and distributed it to millions of wallets that had interacted with its network. Eligibility was based on criteria such as transactions, bridging assets, and liquidity provision. The token’s launch was one of the most anticipated events of the year, and despite volatility, ARB reached a peak near $2.40. More important than price, however, was the precedent it set: large scale governance token launches on scaling platforms can activate millions of users overnight, strengthening network effects for the entire Ethereum ecosystem.
ApeCoin’s story is tied to the meteoric rise of the Bored Ape Yacht Club (BAYC). In March 2022, holders of BAYC and related NFTs suddenly found themselves eligible to claim APE, the governance and utility token for the Ape ecosystem. At its peak of nearly $28, many NFT holders saw their initial purchases multiply in value by orders of magnitude. Unlike DEX or infrastructure airdrops, ApeCoin demonstrated how cultural assets: NFTs, art, and community memes could anchor serious financial instruments. It blurred the line between lifestyle brand and financial tokenization.
Launched in 2023, Worldcoin pursued an entirely different philosophy: to onboard the “next billion users” by tying token distribution to biometric verification via iris-scanning “Orbs.” While controversial for its privacy implications, the airdrop captured headlines globally. Worldcoin’s WLD token surged on launch and has continued to attract attention thanks to its association with OpenAI co-founder Sam Altman. Unlike the more organic community airdrops of Uniswap or ENS, Worldcoin positioned itself as a grand social experiment: what if financial inclusion could be bootstrapped through global biometric registration? Its success is still debated, but its scale is undeniable.
These six airdrops represent more than isolated events; they are markers in the evolution of the crypto economy. Uniswap and ENS showed how infrastructure can be given back to its users. Optimism and Arbitrum illustrated that scaling solutions could mobilize massive user bases while reinforcing Ethereum’s dominance. ApeCoin demonstrated the financialization of culture and community, while Worldcoin raised questions about identity, equity, and ethics on a global scale. Together, they highlight that airdrops are not just marketing strategies but mechanisms for bootstrapping networks, rewarding early belief, and shaping the governance of decentralized futures.
The Unanswered Question: Do Airdrops build Loyalty?
Despite billions of dollars’ worth of tokens distributed through airdrops, little is known about whether these mechanisms actually create long term, valuable consumers or merely attract short term speculators. The guiding premise is that airdrops sit at the intersection of marketing (customer acquisition), consumer psychology (motivation and trust), and economics/finance (network effects, tokenomics). There needs to be research by studying how consumers respond to airdrops. Consumers may adopt tokens for speculative reasons or utilitarian ones. Literature on ownership psychology suggests that consumers value assets more when they are framed as earned or owned, rather than as windfalls. This raises the question: are airdropped tokens perceived as “free money” or as gateways to deeper brand engagement?
Nithin Eapen is a technologist and entrepreneur with a deep passion for finance, cryptocurrencies, prediction markets and technology. You can write to him at neapen@gmail.com
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