If you’re an ICO investor, you’re probably not that happy about the free airdrops. Am I right?
You see the social media’s of the ICO floated with new and curious crypto enthusiasts, but you’re wondering. Are these people here for free coins or are they genuinely interested?
Are airdrops bad for ICO investors?
Yes, they very well could be! To answer this question, we need to dive into regular investing terms. Are we qualified to do so? We are not expert investors, but our team has a few angel investors who funded early-stage start-ups outside the blockchain industry and been through start-up accelerators or raising funds for tech companies. And naturally, we all invested in several ICO’s.
We even had a look at the average Airdrop hunter profile recently, which you can find here.
Not sure what crypto airdrops are and why they are popular? Have a look at this introduction video we created on airdrops.
Why would an investor care about a crypto airdrop?
Dilution! This word is used a lot by investors and start-up world. The dilution of shares is a nightmare for each investor because their piece of the cake gets smaller or reduces in value.
Let me give a small example.
Let’s say John finds 2 unique stones that he calls ABC stones. There are no others in the world, so he owns the entire market of ABC stones.
He sells one stone for 100$ to his neighbor George.
He gives away the other stone to his son Bill.
Now the entire market of ABC stones is worth $100, which means in theory that each stone is worth $50. George’s stone just got diluted 50$ of value, because John airdropped his ABC stone to his son!
This is what investors are worried about. When an ICO has 100 Million coins, and the investors pay 1$ per coin for 90 Million coins. The remaining 10 Million coins get airdrop to the loyal users of AirdropAlert.com, now there is a market cap of 90 Million USD for 100 Million coins. Meaning the price per coin is 90/100 = $0.90 -> Dilution!
Investors do not like it when they know their investment will lose value before the project even starts. Can you blame them?
Customer acquisition cost (CAC)
Yes, an Airdrop brings customers/users, but at what cost? User acquisition cost means what amount of dollars is spent to get a user to the platform. Things that fall in this category are advertisements, marketing, press releases and in the ICO world: Airdrops & Bounties.
Let me start by explaining that user acquisition costs usually start high and gradually go down over the years, depending on how fast you grow. But what is the right cost to attract users?
For that, we will have to explain 2 more things.
Customer lifespan & revenue per Customer
What is the average returning visitor lifespan of your users and how much revenue do you make of that?
Facebook has a long user lifespan, people make an account and use it for the rest of their lives, but most projects don’t have that luxury position.
A Mercedes dealer has a low user lifespan, however, if they make a sale it yields a high amount.
So when a Mercedes dealer spends 100$ to get a new customer, but he earns 2000$ on each sale. He is doing a great job.
But if Facebook spends 100$ on attracting new users, but it makes 10$ per user per year, this is not that great.
If BountiesAlert.com makes 1$ per user on an advertisement, they cannot spend 5$ to gain users or they will be operating at a 400% loss!
This is obviously some examples of easy & dirty math, but it’s to simplify the point we are making. Which is that a project should be aware of all their numbers & metrics!
How can airdrops work for an ICO?
So, when an ICO is acquiring users they should think about a few things:
- How much am I diluting the shares of the investors?
- How long will a user stay loyal to their platform
- What is the revenue they make in the customer lifespan
- How much they are willing to spend to acquire that user
There are some additional benefits airdrops have, but an investor looks at numbers. If the numbers don’t add up, serious investors will stay away.
We love airdrops, but we believe projects need to be more aware of their airdrop strategy, to yield the best results for investors and airdrop hunters. We believe this can be a sustainable marketing tool for ICO’s, but things have to change a bit before we get there.
Airdrops are not perse bad for ICO investors, but they can very well be terrible! Take into consideration what I wrote above. Let it marinate for a while. I’m sure your goal is not to potentially hurt the ROI of your investors, so what can you do?
After studying the data of 2500 airdrop campaigns, we found the right formula to create a strategy that works for your investors and airdrop hunters.
Airdrop Alert Tip: Do not airdrop over 3% of your token supply. Spread your giveaway in phases, and have several different airdrop token amounts as each phase targets a different kind of customer. You will want to attract investors during the ICO stage, but real users while launching a product or platform.
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Blockchain entrepreneur since 2013 and founder of AirdropAlert.com. “Crypto has changed my life and I’m here to share my knowledge, experience and enthusiasm with you.”
Favorite cryptocurrency: Ethereum, Stellar & Litecoin
Favorite Airdrops: OmiseGo, BlitzPredict & AELF