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SmartDrops vs AirDrops: Changing Investor Behavior

Aug 17, 2018

Since the explosion in crypto’s popularity late last year, ICOs have been the main channel for token distribution. However, they have their growing share of critics, not least the SEC, so it’s no surprise to see distribution alternatives already popping their heads up. 

Airdrops

One of the most successful alternatives for raising capital has been for blockchain founders to do a private ICO to raise initial funds and then follow this up with AirDrop to drive awareness, popularity and therefore price appreciation. An AirDrop essentially amounts to giving away tokens in the hope that those chasing returns will buy into the blockchain as it goes through its own cycle of popularity and expected subsequent price increase. However, when the requirements to execute an AirDrop are minimal, for example retweeting a tweet or signing up to a newsletter, you can’t expect to have many long-term holders among your user base. This has been one of the main criticisms of the AirDrop tactic as they’ve exploded in popularity.  Airdrops are often viewed as the spam email of the crypto world and are viewed as little more than a short-term marketing tactic. Already social media sites like Facebook have clamped down on ICOs ability to advertise and promote.

Smart Drops

However, as with everything in the crypto world, evolution happens at a much faster pace.  Already, we’re seeing a variation of the AirDrop come into play as an alternative to public ICO’s, the SmartDrop. It’s been gathering pace as an attitude, idea and strategy since they were first publicly discussed by David Johnston earlier this summer. Instead of focusing on quick returns via the spray and pray approach of a public ICO or AirDrop, Johnston argues that blockchain founders should be more focused on building a forward looking community of long term holders who believe in the underlying software. Enter the SmartDrop. In an ideal world, the receivers of an AirDrop would be carefully selected and in doing so making the drop a significant event to both the giver and taker, who are both trying to add meaningful value.

If as a blockchain founder, your goal is to build a sustainable and respected product, then you’re incentivized to stay away from ICOs which are swamped with speculators and tend to pull in the least committed investors. On the flip side, investors worth their salt are going to be attracted to
a crypto that values itself enough to veer away from the quick buck that can be found in an ICO, and focuses instead on growing a community by essentially handpicking who it wants to be the initial holders and to be part of the bootstrapping.

The thinking is that investors should be chosen on the basis of their commitment to the project and community, commitment that will ultimately pay off down the line as the product gets into the mainstream faster. And these blockchain investors should be eager to get involved in such a project because a decision to shun the public ICO keeps the founders honest - remember the software has yet to prove itself in most cases. Too often we hear of blockchain founders who become distracted from their early goals after raising more than they ever imagined from a much hyped public ICO.

An ICO could be more appropriate and effective a little further down the line, once a community has been built and the software has been proven. Raising a heap of cash early on can act as a cement block on the founder’s aspirations and direction as they’ve suddenly achieved all this wealth without having to deliver software. If needs be, the founder can conduct a private or smart ICO to raise funds instead where again they’ll be dealing with people focused on their software’s long-term success rather than a quick buck.

Companies like Quantstamp, Dfinity, Polymath and Open Garden have already started to move on from untargeted ICOs and “dumbdrops” to targeted SmartDrops. Quantstamp targeted users by scoring their levels of engagement and distributing tokens accordingly. Open Garden is targeting the 5 million users on their FireChat messenger app who have already someway bought into the Open Garden philosophy.

The focus of token distribution is shifting to building a sustainable, loyal community instead of simply raising cash. Quality over quantity is the new motto and the sign of a blossoming, maturing industry. As children we learn of the tortoise beating the hare, as blockchain enthusiasts we’re learning of the SmartDrop beating the ICO.