Airdrops are dead, welcome long live incentive programs
Over the past four years, airdrops have evolved from a nice surprise for early users into a "mutually beneficial" relationship between farmers and protocols. Well-designed incentives can make or break a project, and only those who approach this strategically will survive.
The Power of Communication
Protocols need to clearly communicate their values and reward structures from the start.
Without a clear direction, users tend to mimic past behaviors that were rewarded—even if they don’t align with the current protocol’s goals (e.g., “Optimism rewarded governance, so zkSync should too”).
- Clear communication helps prevent wasted user effort.
- Transparent incentives build trust and encourage more active, aligned participation from the community.
Scroll is a great example of how communication impacts the success of an incentive program. Just compare the trends in total TVL versus productive TVL in the network.
Productive TVL (pTVL) is defined as assets locked in protocols within the network. The higher the pTVL, the better the user experience (e.g., lower slippage, better rates).
- Phase I - Initial Uncertainty. At first, Scroll didn’t have a rewards program. As a result, both TVL and pTVL remained low.
- Phase II - Broad Incentives. The first rewards program encouraged users to bridge and hold funds on Scroll. This led to a spike in TVL but caused a drop in the pTVL ratio.
- Phase III - Targeted Incentives. In the third phase, the focus shifted to directly rewarding pTVL. This not only increased overall TVL but also significantly boosted the pTVL ratio.
ZKsync vs. Blast
- ZKsync: Despite launching earlier and riding on long-standing hype, the lack of clear incentives created uncertainty among users and slowed down ecosystem growth.
- Blast: By setting clear goals and introducing separate point systems (Blast Points and Blast Gold), Blast managed to drive up TVL, pTVL, and the pTVL/TVL ratio more effectively.
What to Incentivize?
Projects should encourage user behaviors that actually make their product better. One common mistake teams make is rewarding the final metric instead of the behaviors that drive organic growth.
A Great Web2 Incentive Example: Airbnb
Instead of directly rewarding bookings (Airbnb’s end goal), the company focused on improving listing quality. They offered free professional photography for hosts and prioritized high-quality listings in search results. This approach enhanced the overall quality of listings, increased user satisfaction, and ultimately led to more bookings and guests. More guests attracted more hosts, creating a self-sustaining growth loop. Even after Airbnb stopped the incentives, listing quality remained high due to natural market competition.
Incentives in Web3: LooksRare vs. Blur
- LooksRare incentivized trading volume directly (a final metric). This led to an initial surge in activity but also encouraged wash trading, making the growth unsustainable.
- Blur took a different approach, rewarding liquidity by incentivizing listings and real trading activity. This created actual value for users, improved the marketplace experience, and drove organic growth.
If we use NFT market share as an indirect success metric, Blur’s dominance speaks for itself. In contrast, LooksRare only managed to grow its market share moderately and for a short period.
After the Incentives
The Blast case is a clear example of both the power and the limitations of incentives in crypto. The first season of the rewards program was a massive success by many metrics, proving to be highly effective as the network outperformed many well-known players in terms of TVL and pTVL growth. But once the season ended, it became painfully clear - users and capital started migrating elsewhere en masse.
This sharp decline in all key metrics highlights two major points:
First, incentives alone can't replace a real product with PMF (product-market fit) that solves an actual problem. Blast, as an L2 solution, is competing in a crowded space. It's questionable whether we need another L2 at all, and even if we do, is Blast profitable enough to stand out from the competition?
While incentives can effectively drive growth and solve the "cold start" problem, protocols need to gradually adjust their incentive structures to encourage organic activity and build a sustainable user base.
The reverse flywheel of incentives When incentives dry up, protocols face the risk of their growth flywheel turning in the opposite direction:
- Users and capital move on to more attractive opportunities.
- The exodus worsens the user experience.
- Organic users, frustrated by the declining UX, also start leaving.
- Then, developers, seeing the decline in users, leave the platform too.
What users should do about all this The situation is twofold. On one hand, the listed recommendations (clear communication, incentivizing the right behaviors instead of just final metrics, finding PMF) make life easier for the average drop hunter, sparing them from agonizing over which actions will trigger rewards. On the other hand, these same recommendations level the playing field for many participants and significantly reduce the potential reward per account, which is exactly what we've seen for most of 2024. In the end, it all comes down to trying to guess which project will be valued higher by the market while avoiding multi-accounters, which leads to the problem of low float, high FDV projects, whose drops everyone rushes to dump at the first signs of a price spike. And even if we imagine a perfect scenario where a project manages to achieve organic growth and find PMF, that doesn't always translate into token price growth. So we end up with a situation where making money from drops is getting easier, but landing a life-changing return is becoming harder.
At this point, it's up to each individual to decide: either treat drops as a business and support projects with a clear direction, helping them achieve their goals, or play the role of a "venture investor," taking risks and investing in stories with no clear plan, but with a slim chance of hitting it big