The 2020 cryptocurrency bull run marked an evolutionary phase for the decentralized sector. DeFi was the most popular niche from the increased activity among blockchain use cases. Numerous dApps were launched on smart contract-supporting chains and captivated the crypto community with their unique possibilities.
Besides the ingenuity offered by dApps, ensuring constant adoption and usage remain a hurdle within these volatile markets. Most DeFi projects turn to airdrops to achieve traction in their initial and growing periods, incentivizing users for interaction while witnessing surging adopters and token prices.
How Airdrops as A Concept Has Grown Out of Bounds
The concept of airdrops came into existence with the rapid creation of altcoins and the dApps they find utility in. Since many projects were deployed on Ethereum and other networks, airdrops enabled those turning to them to stand out. Airdropping native tokens is a strategic move that reconsiles with the common notion of incentivzation in Web3 and a perfect way to onboard investors into their ecosystem and get them to trade it after receiving a free-airdrop.
On the other hand, established projects also used Aidrops as a means of rewarding active users and token holders to sustain user interest. Since, for all those protocols who rely largely on their token price movements, maintaining liquidity for Airdrops is a vital part of their tokenomics. Most projects reserve a portion of their token supplies for such marketing purposes. It shows their user bases that they are at the forefront of project growth and underpins a crucial principle of blockchain decentralization – the incentivization of the community.
For instance, Arbitrum, the layer-2 Ethereum scaling blockchain, airdropped over a billion $ARB tokens to its users and the DAOs of dApps functioning on it. The $ARB airdrop came on 23 March 2023, much after Arbitrum’s launch on 31 August 2021. The event piqued the interest of the entire crypto community and resulted in increased network usage and total value locked (TVL) of the chain. Similarly, Uniswap airdropped its UNI tokens to a whopping 250,000 wallets in 2020, resulting in several people cashing out on the tokens and receiving free profits worth $1000s of dollars, that got them to become either trade the token frequently or lock-it-up for a long term gain.
The Bottlenecks Faced by Airdrop Wallets
Pulling off large-scale airdrops is no piece of cake. There are several restrictions that projects accept as a part of the process.
Token Claim Distribution
Projects must ensure they send the right amount of tokens to the several wallets that claim them. The amount given depends on factors like prior interaction of wallets with the project, users completing campaigns, and more. Projects must verify every wallet claiming the tokens and transact the amount manually during the airdrop period.
Inability to Batch Transactions
They send these transactions individually as wallets come forward to claim their tokens. The teams dedicated to transacting airdrop tokens get burdened with initiating them one after the other. The redundancy is very time-consuming, with projects relying on a few trusted team members to handle the airdrop wallet private keys and execute thousands of transactions.
No Whitelisting Feature
Airdrop wallets hold plenty of tokens for obvious reasons. The massive value makes them a prime target for exploits. Cybercriminals can gain access to the private keys and send funds their way. A lack of whitelisting functionalities in airdrop wallets allowing funds to be directed only to approved wallets can cause projects to lose thousands of dollars to cyber theft.
Maintaining Sufficient Liquidity in Airdrop Wallets
Airdrop wallets are essentially hot wallets that projects use to transact tokens instantly during their airdrops to eligible users. Most of the project airdrop tokens are stored in its cold wallets, far from the reach of hackers. Since hot wallets are vulnerable, wallet maintenance teams should constantly watch over the liquidity in the hot wallet to keep outbound transactions going. When the liquidity begins depleting in hot wallets, relevant personnel move funds from warm wallets, which cold wallets replenish. Keeping airdrop wallets solvent is strenuous and adds pressure on those working to keep airdrops smooth.
High Gas Fees
Projects face shelling out immense gas fees for every airdrop transaction. Due to the vast number executed because of airdrops and users liquidating the tokens they receive, blockchain networks get congested, causing high gas fees. Mostly, projects are responsible for paying gas fees, which can amount to several thousand dollars. Some airdrops may require the user to foot the bill for executing their airdrop transaction.
A Solution Poised for Airdrop Wallets
Liminal’s crypto asset storage infrastructure helps overcome pain points felt the most by projects carrying out airdrops. The infrastructure’s wide range of features has made enterprise and exchange storage processes as secure and convenient as possible. Now, it is doing the same with airdrops.
Liminal brings automation to the highly redundant transaction processes that airdrop wallets witness. Projects can rely on the smart refill wallet to conveniently maintain sufficient liquidity within their airdrop wallets. The smart refill wallet monitors the liquidity in airdrop wallets and automatically replenishes it to prevent the airdrop process from witnessing hurdles. The refill transactions are initiated in batches in advance by the project teams and approved by Liminal’s algorithms when low liquidity in hot wallets is detected. It is possible through the multisig capabilities of Liminal’s smart refill wallet.
Transaction batching makes outgoing transactions easier to initiate. Liminal’s infrastructure allows airdrop wallets to set multiple transactions for eligible wallets as they claim their airdrops. Projects can now create a bunch of airdrop transactions, batch them, and send them in one go at the time of the airdrop instead of processing every transaction.
Further, eligible airdrop addresses are whitelisted on Liminal’s airdrop wallet. Any transaction initiated to a wallet address not part of the whitelist gets denied by the Liminal Signer from being relayed to the blockchain. Those considered safe and making it to the blockchain do so with the most optimal gas fees for economical yet quick confirmation. The Gas Saver algorithm studies the congestion in blockchain networks and figures out the right amount of gas to pay for transaction validation, preventing airdrop events from losing out on funds in the form of extra gas.