Who's Farming Who: How to Become Airdrop Hunter, Not Prey?

Is It Over?

The airdrop meta is obviously overheated as there have been too many farmers and sybils already. But the real issue isn't that; it's that the macro sentiment is worsening and the inflows of new liquidity into the crypto space via Bitcoin ETFs are running out. In order for the market to continue its growth and generous airdrop cases to emerge, a new source for fresh money to flow into crypto is needed. Perhaps it will be the American presidential election and its possible outcome, since Donald Trump has started talking positively about cryptocurrency regulation. Nobody knows, but for now, like a lot of things in crypto, the airdrop meta needs to fade away to blossom even stronger later. However, we have to prepare for this blossom now.

Airdrop Types

In order to become the hunter rather than the prey, you first have to understand the types of airdrops. And we're not talking about this useless dichotomy of airdrop and retrodrop; we're talking about the nature of farming. Broadly categorized, airdrops come in two primary types: liquidity-based and interaction-based. Both types have their advantages and limitations; let's break it down.

Liquidity-based Airdrops 

For farming a liquidity-based airdrop, you simply need to bring liquidity to the protocol. The more liquidity, the bigger the airdrop. Since this is turning into a whale's game for obvious reasons, projects prefer to introduce a tier system so that the entire emission does not end up in the hands of a few. Generally, you farm with liquidity through various kinds of staking and restaking protocols, or money market protocols, such as lending and yield platforms. Well-known examples include EigenLayer, Ethena, and Jito. Separately, we can distinguish staking-based airdrops as a subcategory of liquidity-based airdrops. This is most often associated with the Cosmos ecosystem; however, recently others have been trying to implement something similar within their ecosystems with varying success; we have a separate article about stakedrops.

Liquidity-based airdrops in some sense resemble yield farms reminiscent of the DeFi boom in 2020, but without exposure to volatile farm tokens, only to major assets like ETH, BTC, or SOL. The main difference, though, is that instead of cumulative yield, you get it all at once. The APR of these airdrops can vary significantly and is typically not disclosed upfront, ranging from as high as 400-500% with Jito to about 15-20% with Manta Paradigm. 

The main challenge with liquidity-based airdrops is the dilution effect caused by an ever-increasing TVL, which diminishes the value each participant receives. The advantage, on the other hand, is simplicity; you simply deposit assets and don’t have to take further action. Lately, this type of airdrop often comes with an insignificant reward and tends to be unworthy of your time, risk, and liquidity. It's increasingly becoming clear that it's not you farming a protocol; it's the protocol’s team farming you, getting your precious liquidity in exchange for dust. You don't have to go far for examples; recently, Renzo and Zerolend gave away pennies. Most likely, Blast will turn out to be a big disappointment for many.

Interaction-based Airdrops 

Here we have something more interesting and profitable. For farming an interaction-based airdrop, you have to interact with a project as much as possible; the eligibility criteria are usually based on transaction and volume count. Those airdrops offer potentially higher rewards—up to 300 times the fees spent, as seen in cases like Arbitrum and Wormhole. This is how farmers get life-changing money. While interacting with a protocol, a farmer not only tests it but also serves as a direct source of income by paying transaction fees. Generally, you can farm chains, DEXs, bridges, and games by constantly interacting with them. Recently, however, chains have been focusing on bringing in TVLs like Blast, Manta, and Mode. As a result, the farming profits have been disappointing with the last two; let's wait for Blast to come out.

Interaction-based airdrops are vulnerable to dilution through an increasing number of wallets that intensively engage with protocols, potentially marginalizing less active participants. This is where the problem of industrial-scale automated farms has blossomed, forcing projects to implement various KYC and onchain reputation models, which we covered in this article. Another downside is the necessity for continuous active participation, which can include regular transactions and social engagement tasks.

Additionally, some projects employ a hybrid approach, integrating multiple engagement metrics such as volume, liquidity, and referrals. For instance, Hyperliquid’s farming combines volume, transactions, liquidity, and referral metrics; whereas Linea decided to split farmers and run both the interaction-based campaign (Linea Park) and the liquidity-based campaign (Surge), targeting different audiences.

Points System Is Disease

Blast, which suddenly emerged in the fall of 2023, redesigned airdrop farming by bringing in the points system. Since then, most tokenless projects have introduced points in one form or another. The points system significantly reduces the entry barrier to farming, increasing the number of farmers and diluting the airdrop. You no longer have to explore the space on your own and guess who is going to distribute and for what, or if they will distribute at all. There is no alpha in the fact that the project rolls out a points program and explicitly calls for airdrop farming. Perhaps after Blast's token generation event, this frenzy will calm down, or a more balanced system will be introduced.

Tips on How to Farm, Not Get Farmed

• Set realistic expectations. Memorable airdrops like Arbitrum were anomalies with fewer airdrop farmers, resulting in high returns; those times are gone. The current crypto space is overcrowded with industrial farmers and teams trying to fight them with strict criteria. 

• Unless you are a whale, better focus on interaction-based airdrop farming. In the case of liquidity-based farming, you should pick your objective wisely because liquidity is limited. However, interaction-based projects can be farmed all at once; it's a matter of spare time.

• Try to avoid points systems as much as possible. Since almost everyone is announcing point programs nowadays and there is no way to avoid them completely, you can try to farm a promising project before the program is announced.

• Pick unicorns, not copycats. Try to find and farm something unique. There is no point in wasting time and money on endless forks of Uniswap, Aave and another L2 on Optimism stack. Nobody really needs them without airdrops, they will distribute dust and quietly fade away after it.

• While choosing a project, think like a user, not a farmer. Look at the project as a product, not a source of airdrop. If you like the user experience and you're likely to use the protocol after TGE, then it's probably a good product, and you're not the only one who will use it. 

Few Hints

Here are some interesting projects for farming products from the perspective of the author of this article. It's not clear how to farm many of them, but that's the point. Some of them haven’t launched yet.

• Monad. Monad is an Ethereum-compatible L1 with parallel execution, that promises to deliver 10,000 TPS within EVM.

• Berachain. Berachain is an EVM-compatible L1 built on Proof-of-Liquidity consensus, that emerged as a meme.

• Elixir. Elixir is a modular chain that serves as the unified liquidity hub and provider for orderbook DEXs, such as Hyperliquid and Aevo.

• Redstone. Redstone is an OP Stack-based Ethereum rollup and part of the Optimism Superchain, that focuses on fully onchain gaming.

• Eclipse. Eclipse is an emerging Ethereum rollup, based on SolanaVM.

• Kakarot. Kakarot is an EVM-compatible ZK-Rollup that leverages Cairo by Starknet.

• Movement. Movement is a network of modular Move-based rollups, using EigenDA.

Output

As the airdrop meta evolves, the distinction between hunter and prey becomes increasingly nuanced. The contemporary airdrop scene comes with challenges: the saturation of professional farmers, the specter of dilution, and the overarching shift in macroeconomic conditions influencing cryptocurrency inflows. While the past painted a picture of lush rewards for early adopters, the present narrative requires a tempered approach with realistic expectations.

For those looking to not just survive but thrive in this environment, focusing on interaction-based airdrops presents a promising avenue. These require active engagement and can yield substantial rewards, contrasting sharply with the often underwhelming returns of liquidity-based airdrops. Ultimately, success in this realm is about choosing the right farming battles and understanding the underlying mechanics of each project. Keep an eye on emerging trends and innovations, and position yourself where you can be the hunter, not the hunted, in the ever-evolving airdrop meta.