Many new projects have exploited mechanisms like airdrops and VC funding to maximize their market presence and valuation. This strategy often results in significant profits for venture capitalists (VCs) while leaving regular investors at a disadvantage.
A typical pattern involves crypto projects launching with airdrops or point systems to attract early adopters and build an initial user base. These airdrops, however, are frequently targeted by large investors, known as "whales," who accumulate significant amounts of tokens. As these whales amass tokens, they leverage them to gain influence over the network and maximize their rewards through mechanisms like staking.
Once the token is distributed through the airdrop, the project often seeks additional funding from VCs. With the promise of a large user base and substantial token circulation, VCs invest heavily. The project team then boasts about their user numbers and adoption rates, although much of this growth is inorganic and driven by the initial airdrop strategy.
The token eventually enters public markets with a high valuation, largely driven by the investment and backing of VCs. As the token gains exposure, a significant portion of the early airdrop recipients—often less committed to the project—sell their tokens to realize quick profits. This selling pressure can destabilize the token price, benefiting VCs who bought in at lower prices and can now sell at a premium.
Meanwhile, the project team and whales continue to stake their tokens, earning most of the rewards. This scenario can lead to an imbalanced market where there is little organic demand for the token, causing order books to become one-sided. This lack of genuine interest can make the token susceptible to price volatility and manipulation.
Several projects launched in 2023 and 2024 have demonstrated this pattern. For example, the Renzo Protocol and LayerZero have utilized airdrop and point systems to attract users, subsequently securing significant VC investments. Similarly, projects like Sei and Ether.fi have leveraged staking rewards and governance tokens to enhance their appeal and attract large-scale investments .
The balance between attracting early users and ensuring sustainable, organic growth. As more projects adopt similar tactics, the need for transparency and fair distribution methods becomes increasingly important to foster a healthy and equitable crypto ecosystem.
So guys pay more attention to the tokenomics of a project and the amount of the airdrop before investing.
Posted Using InLeo Alpha
