Airdrops Are Dead. The New Incentives Meta

Uniswap kickstarted the golden age of airdrops. Since that initial retroactive token distribution, thousands of projects have tried the same, giving early users a piece of the pie while achieving broad token distribution. Over time, this has evolved, where now there’s a whole subset of users called airdrop farmers with very clear expectations regarding what they are owed. 

The cracks in this model are undeniable. In 2024, retroactive airdrops are not just a flawed mechanism—they're an obsolete one.

The Problem with Airdrops

Airdrops once held promise. They rewarded early users, created an emotional allure (“the pot of gold at the end of the rainbow”), and were simple to execute. But simplicity can be deceptive.

Bad for users: Pre-launch farming isn’t a reliable measure of user commitment. Many users engaged the bare minimum required to earn the airdrop, with no intention of sticking around.

Bad for projects: The lack of loyalty means post-launch adoption is lackluster. Once the airdrop hype subsides, users move on to the next airdrop to farm.

Bad for tokens: Airdrops encourage immediate dumping, leaving the project with a weakened token price and limited resources to attract genuine users.

Looking at Airdrops from a CAC (Customer Acquisition Cost) point of view makes it clear that they are a stupidly expensive ways of acquiring users. They also don’t consider future LTV (Lifetime Value) of a user, but only their past contributions. This lack of segmentation distributes a large share of tokens to the wrong hands, which in turn makes the post-airdrop chart all too predictable.

So why did airdrops proliferate? Because they are easy. They serve as a blunt instrument for achieving broad token distribution and drumming up initial excitement. But the industry has matured. Competition is fierce, user attention is scarce, and loyalty—measured as retention—is now the most critical metric for serious projects.

Points Systems: A Misstep in Incentives

As airdrop inefficiencies became clear, many projects pivoted to points systems to drive pre-launch engagement. Users would earn points by interacting with protocols, with the expectation—explicit or implied—that these points would later convert to airdropped tokens. 

Points are much better than totally abstract airdrop promises because they allow projects to iterate on their allocation. They can do one-off campaigns, give people points-based prizes, multipliers and of course change the rules mid-way, or even decide to not honour the airdrop promise altogether (or simply delay it forever). 

This is point system’s fundamental issue: they are dishonest towards users. The promise of future rewards is implied, but the actual terms remain undefined, inconsistent, or retroactively decided. Users act in good faith, dedicating time, effort, and capital only to be left uncertain about the value of their contributions. 

This lack of transparency breeds frustration and distrust, undermining the very engagement these systems seek to encourage. Points systems are yet another iteration of short-termism, failing to build the loyalty necessary for long-term success.

Searching for Solutions: from Liquidity mining to veTokenomics

Liquidity Mining campaigns where the first successful incentive campaigns. Focused on growing AMM deposits, these mechanisms were very effective but very short-sighted. Users got rewards for providing liquidity, but these rewards were hot potatoes, and selling them first was the only way to win. Whales were over-incentivised, too many tokens were distributed, and no-one wanted to hold long-term. 

One approach to solving the issues around long-term alignment in DeFi was the next evolution of sporadic LM campaigns: integrated veTokenomics (voting escrow tokenomics). By incentivizing users to lock their tokens for extended periods, veTokenomics aligns user incentives with the protocol’s long-term success. This mechanism encourages governance participation, price stability, and loyalty.

At first glance, veTokenomics seems like the ideal solution—it builds commitment while discouraging speculation. However, its utility is limited. Most veToken models are narrowly tailored and integrated into monolithic DeFi protocols with a clear north star: accumulating more liquidity. 

VeTokens are however fundamentally unsuitable to address the broader needs of projects in gaming, NFTs, and beyond.

The Need for a New Incentive Model

To address these challenges, a new incentive mechanism is needed. It should:

• Reward and incentivise meaningful participation
• Mitigate dumping and incentivise long-term holding
• Build loyalty through sustained engagement and rewards
• Segment users based on their LTV, rewarding them accordingly
• Be easy to implement, and flexible to cater to complex apps and ecosystems

This is where Streaming Programmatic Rewards (SPR) enters the picture.

SPR: A Loyalty-Centric System for a Mature Industry

SPR is designed to tackle the pitfalls of airdrops and liquidity mining by focusing on retention, loyalty, and segmentation. SPR unites the flexibility of points systems with continuously streamed rewards, ensuring users are paid out continuously. 

The system works as follows:

1. Action-Based Rewards: Users earn points by taking specific actions in an app or ecosystem, ex. voting, minting NFTs, providing liquidity, or otherwise engaging with apps. These actions are tracked via Stack leaderboards, gamifying participation.
2. Transparent reward budgets: for each leaderboard, a specific streaming rewards budget is pre-allocated, defining a certain amount of rewards to be distributed over a certain time period. 
3. Reward Streaming: user points are periodically converted to a share of the streaming rewards budget of a leaderboard. Over time, the most active participants naturally dilute others, taking the lion’s share of the streaming rewards. 
4. Token Reserve: Rewards are stored in a “Token Reserve”, a contract that rewards patience. Users who want to dump face stiff penalties, while users who hold longer are rewarded.

Why SPR Works

1. Flexibility Through Off-Chain Infrastructure SPR isn’t limited to on-chain actions. It can dynamically track user engagement across ecosystems, networks, and apps, and can even include off-chain activities (like social media actions). This flexibility allows projects to incentivize behaviors beyond liquidity provision, creating a holistic engagement model. All actions are quantified into points, tracked on a public Stack leaderboard, and easily auditable.
2. High Engagement Through Streaming Rewards Streaming rewards appear in users’ wallets incrementally, fostering habitual engagement. Users must actively claim rewards, which creates frequent touch points with users and opportunities to re-engage them within the app or ecosystem.
3. CAC Segmentation via Reserves Reserves introduce a novel way to align Customer Acquisition Costs (CAC) with user loyalty. While all users are initially rewarded equally, tokens are streamed into individually owned smart contracts called Reserves, which then allow users to self-select based on their time-preference:

• Short-term sellers, who want to sell immediately, are only able to withdraw a fraction of their reward amount. This helps projects minimize waste on transient users.
• Patient sellers, who want to sell their rewards but aren't in a rush are streamed the full amount over a predefined period of time.
• Long-term holders, who are happy to stake their tokens instead of selling receive higher rewards, paid for by the short-term sellers. 

This segmentation allows projects to allocate resources efficiently, rewarding users based on how long they stick around for (which maps with their LTV), while also explicitly reducing sell pressure by limiting the amount of immediately liquid tokens.

Is Farming Really the Problem?

Many builders are quick to dismiss "farmers" as exploitative, but this oversimplifies the issue. Farming includes speculators, rewards optimizers, and real long-term users. These groups often overlap, especially in lower-income regions where farming can be a legitimate means of participation. The real issue isn’t farming itself but over-incentivizing farmers without fostering loyalty. 

As projects mature, they must embrace mechanisms like SPR that guide users toward long-term engagement, and segment users to optimise rewards.

Token allocations can be positive sum, creating financial rewards for everyone involved. But this is only possible if a majority of rewards are allocated to long-term holders.

A Thoughtful Evolution

SPR is not a rejection of what came before but rather a necessary evolution. Like veTokenomics, it values loyalty, but it extends this principle to broader use cases, bringing about necessary flexibility for consumer apps, which often live across networks and have many offchain components. 

Unlike airdrops, SPR doesn’t frontload incentives only to see engagement drop off. And unlike traditional liquidity mining, it avoids overpayment and creates a sustainable feedback loop of engagement and retention.

The days of airdrops are over. The future belongs to projects that reward not just participation but commitment. In a world where attention is scarce and loyalty is priceless, mechanisms like SPR may hold the key to sustainable growth.