What is a lockdrop?
One of the fundamental questions about launching a new crypto project is how to rise above the noise and attract investors. Some of the methods employed to gain adoption are:
- In previous years, ICOs were a popular method of attracting initial investors.
- Airdrops are one of the most popular methods that attract a lot of initial investors.
Intro to Lockdrop
Lockdrops are a newer method to distribute tokens to a wide variety of investors. It’s similar to an airdrop but whereas airdrops are dropped based on a snapshot, a lockdrop requires participation. Typically this requires locking existing tokens into a smart contract and the length of lock determines the amount of tokens received in return.
The supposed benefits of a lockdrop are that by locking tokens for some time, it incentivizes the users to learn about the project and become part of the community. This is in contrast with airdrops which can be seen as free money without participation and tend to get sold off immediately.
Terra Example: Astroport Lockdrop
One of the first lockdrops on Terra was employed by Astroport — the long awaited AMM. Terraswap LPs were incentivized with ASTRO tokens in return for locking their liquidity in Astroport for anywhere between 2 to 52 weeks.
Did the lockdrop work for ASTRO Price
The answer so far seems to be no. After an initial increase on launch day, the price has been on one way down only.
What about TVL?
The lockdrop worked wonders for Astroport’s TVL. Even before launch, Astroport reached $1 Billion TVL!
Astroport executed a ‘vampire attack’ on Terraswap and took a $1 Billion dollar sized bite out of Terraswap’s TVL. At it’s peak, Terraswap’s TVL was around ~$2.2 Billion but has since receded to around $600 Million.
Now, much of that liquidity is locked in for an entire year.
So, does the lockdrop approach work?
Clearly, if your goal is to capture as much TVL as soon as possible and prevent that liquidity from leaving, the lockdrop prevents an attractive option.