Beyond Hype: Understanding the Impact of Airdrops on NFT Marketplace Performance

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Introduction
The NFT marketplace is evolving. Over the past year, OpenSea has seen increasing pressure from new competitors eating away at its market share. LooksRare, X2Y2, Sudoswap, and Blur have decreased OpenSea's NFT Volume market share from 99%  to 50-30% depending on the week.

While OpenSea may have been one of the darling companies of the web3 era, there is one thing that it's lacking that all of its competitors have: a token. This left a perfect opportunity for a rival marketplace to steal away customers by offering them free cash via a token airdrop. While the above graph may show that airdropping tokens to users worked, on-chain data may point the other way. While volume may be increasing for competitors, OpenSea has only slightly declined in the market share for active users.

So what’s going on? A deep dive into the data around the airdrops for LooksRare, X2Y2, and Blur was conducted to determine how successful each airdrop was for their respective marketplace. All data from the analysis can be found in the respective Dune Dashboard.

How Valuable are NFT Customers?
Before diving into the airdrops, it is valuable to understand how much a wallet may be worth to calculate the Customer Lifetime Value (CLV). By doing this, protocols can properly align token incentives as part of Customer Acquisition Costs (CAC). Looking at the data from last year’s volume and platform fees by marketplace:

It can be seen that most users have generated very little fees or volume. It is noteworthy to see that while Blur and OpenSea’s percentiles for wallet volume are quite similar, the top 1% of traders are what really makes the difference:

• Blur 99th Percentile: $207k in Volume
• OpenSea 99th Percentile: $158k in Volume

The 1% of traders are a key driver for NFT markets. Blur has attracted top traders through its recent airdrop and zero fees. OpenSea has also implemented zero fees to combat the growing threat of Blur. However, it is unclear how these platforms will generate revenue in their current stage. Airdropping tokens to users who generate little revenue doesn't seem like a logical marketing strategy. To showcase this, the analysis below details how LooksRare and X2Y2 airdropped large amounts of tokens to users who never ended up generating any revenue for their platforms.

LooksRare & X2Y2: The Vampire Attacks
At the beginning of 2022, OpenSea was at the top of the world. They had a monthly volume of $4B and had close to a 99% share of active users.  However, OpenSea was not thinking “wen token”, but “wen IPO” leaving many frustrated. Enter LooksRare & X2Y2. LooksRare first came onto the scene in early January by targeting OpenSea users who had traded more than 3 ETH from March 2021 to December 2021. Over 124k+ users were eligible for the airdrop and 67% of addresses claimed the airdrop. The distribution of the LooksRare token is depicted below with users obtaining anywhere from 125 - 10,000 $LOOKS

On the first day of trading $LOOKS was trading around 2.1 dollars, estimating the total airdrop at $206M. Within weeks, LooksRare’s token increased 180% and went from 0 volume to over $20B dollars in volume.

In a similar time frame, X2Y2 launched a little over a month later. The eligibility of the airdrop was any user that had traded an NFT on OpenSea by January 1st, 2022. X2Y2 airdropped 120M tokens. X2Y2’s claim rate was much smaller with only 23% of the tokens being claimed. The rest of the unclaimed tokens were permanently locked in the contract.

Tokens?
As seen with the $UNI airdrop, most of the original airdrop holders ended up “dumping” the token. For a simple definition, this would be any wallet where they are currently not staking or holding any tokens. LooksRare & X2Y2 were no exceptions. Over 59% of $LOOKS and 85% of $X2Y2 airdrop wallets ended up dumping the token.

For other airdropped tokens the results can be lower, but due to lucrative staking rewards offered by LooksRare and X2Y2, many users are profiting off the token.

Also noteworthy is that the “dumpage” is distributed more or less across the varying airdropped amounts for both $LOOKS and $X2Y2. Although some believe that whales have a stronger incentive to hold onto the token than smaller wallets, this belief is unfounded.

While users may be dumping tokens, using an NFT marketplace is completely different. The real question is did the airdrop generate revenue for the marketplaces?

Converting Aridroppers to Buyers
While the criteria for the LooksRare airdrop required users to list an NFT on LooksRare in order to claim, most wallets never ended up actually buying or selling on the platform. In fact, the conversion rate to buy one NFT is just 24%!

While listing NFTs kickstarted the number of NFTs to buy on the marketplaces, many wallets were not actually even selling an NFT and would withdraw their NFT after claiming the airdrop. Due to just having to list an NFT, X2Y2, and LooksRare missed out on additional revenue it could have generated from its users. 

Within 4 months the retention rate of airdropped wallets on LooksRare was less than 10%. Just a year after the airdrop, 0.2% of the airdroppers were active.

The issue with distributing tokens in one large airdrop is that many users will never interact with the platform if there are no further incentives. It is better to have smaller airdrops to keep users engaged and using the platform.

Airdroppers Using the Platforms vs Everyone Else
For the small group of airdropped wallets left, some are still quite loyal. On LooksRare 20-30% of the weekly volume and ~25% of the weekly active buyers are airdroppers.

X2Y2 has similar metrics for the breakdown between airdroppers and non-airdroppers for volume and active buyers.

Blur: A New Paradigm in Airdrops?
After seeing the shortcomings of the previous NFT marketplace, Blur bursted onto the scene. Like its predecessors, it was planning on airdropping tokens to users but this time there was a twist. The airdrop would be concurrent with multiple rounds. The three rounds were conducted based on:

• Round One: Users that had bought or sold an NFT in the past 6 months
• Round Two: Users who actively listed on Blur 
• Round Three: Users who placed bids on Blur

While Blur cast its net wide for users, only a minority of eligible Blur addresses ended up actually using the platform. However, Blur’s metrics soared as traders wanted to get as much of the airdrop as possible.

41% of Blur’s total users had bought an NFT before the launch. These wallets tended to make a majority of the volume on the platform.

As OpenSea was the main target to suck market share from, Blur offered additional incentives to users if they were loyal to their platform. For the addresses that used both OpenSea and Blur, a majority of addresses ended up spending more on OpenSea since Blur’s launch.

The penetration of Blur into OpenSea’s user base is impressive. This does illustrate the power of offering token incentives via an airdrop model, especially over a longer time scale.

Post $BLUR Airdrop
With the Blur airdrop now live and 360M tokens distributed, the airdrop is estimated to be worth $288M (Assuming an average price of $0.80 on the first day of trading).

Unsurprisingly, many have already sold or transferred the airdrop out of their wallet. Only 21% of addresses have held onto their $BLUR

It is still too early to determine the overall success of Blur and its airdrop. One promising metric to consider is the increasing number of active addresses post-airdrop, currently at 31%. On the other hand, users who have dumped the token or remained inactive have lower active rates. Blur's performance thus far is indicative that the platform is gaining traction and holding the interest of its users potentially due to another airdrop on the way.

What Drove the Blur Hype?

There is no arguing that Blur’s airdrop did a fantastic job generating hype and volume for the platform. Many speculated that the airdrop would cause the demise of OpenSea. Others thought that pro traders were the ones driving all the volume to generate more airdrop rewards. To investigate this theory, an analysis was carried out on the total volume, profits, and wash trading of Blur’s top traders.

The volume on Blur's platform is quite skewed, with close to 20% of the total buying volume done by just 25 addresses. This number expands to 45% for the top 250 users, showcasing the significant contribution of power users to the platform's volume. In comparison, OpenSea's top 250 addresses combine for just 11% of the total volume.

Total airdrop rewards claimed on the Blur platform were closely correlated to trading volume. Traders earned 2% - 10% of their total volume in $BLUR rewards. Some addresses even claimed millions of dollars in the airdrop. Excluding NFTs in wallets, many of these users were able to generate significant profits just by trading on the platform and claiming airdrop rewards (Selling volume - Buying volume + Airdrop). A 20% increase in “profitable traders” was introduced when the airdrop was factored in.

Top traders on the platform witnessed an astounding 1000%+ boost to their PnL thanks to the airdrop, highlighting the Blur's allure relative to OpenSea.

Wash Trading on Blur
While Blur has a relatively low overall wash trading percentage around 11%, the top traders on the platform engaged in wash trading to maximize their rewards. Analysis shows that the top 5 traders had a wash volume % of their total volume at 37%, and the majority of the top traders participated in some form of wash trading.

Even notable wallets that claimed millions of dollars worth of $BLUR, had 25%+ of their volume on Blur marked as wash trades. Wallets with 90% or higher wash trading claimed substantial rewards of $100k or more in $BLUR. While the prevalence of wash trading decreases further down the rankings, the fact that top traders who are driving the trading on the platform and claiming the biggest rewards are participating in wash trading raises questions about the fairness of the airdrop and manipulating metrics such as volume.

The $BLUR airdrop proved to be an effective strategy for generating hype and attracting new users to the platform. However, many users quickly dumped the token. The question of Blur’s high volume and dominance over OpenSea also comes into question as many traders gamed the system and traded just to maximize rewards.

Conclusion
The NFT marketplace has witnessed a series of airdrops over the past year, but the success of these airdrops has been questionable. A closer examination of the airdrops of $LOOKS, $X2Y2, and $BLUR tokens reveals that major sell-offs occurred after the airdrop, and user activity decreased drastically following the airdrop. Blur made significant strides in the airdrop model by introducing multiple rounds and criteria, but a small group appeared to manipulate the overall hype and volume. From the data, we can tell:

• Large airdrops may backfire as users tend to sell tokens after claiming them, and too much supply is given away.
• To retain user attention, concurrent airdrops have proven effective, as seen with Blur's success in turning one-time users into loyal customers.
• A one-size-fits-all approach to airdrops doesn't work. Instead, utilizing on-chain data to incentivize rewards and segment users can significantly improve airdrop success by finding high-quality users.

The history of airdrops may be riddled with disappointment, but ongoing advancements continue to enhance the alignment of long-term interests between protocols and users.