Today, we’re launching another exciting new series — BlockchainX. It’s the first series entirely dedicated to the non-tech readers of the blockchain community.

In the first article of the series, we are going to explore the Airdrops on the EOS Blockchain. What is an airdrop? Why is it becoming a new funding model for blockchain startups? What are currently the problems the model is facing?

What is an Airdrop?

Before we deep dive in the airdrop funding model, you should be familiar with what an airdrop is in the blockchain space.

An airdrop is a distribution of a cryptocurrency token or coin, usually for free, to a large number of wallet addresses. – Wikipedia

The airdrop thing is not something new. There have been airdrops since the first ICO on Ethereum Blockchain.

In the beginning, the primary purpose of the airdrops was to bring awareness to you and your product. There is a high chance that you have found tokens in your wallet which weren’t supposed to be there.

However, things are changing, and EOS is bringing a whole new level for the airdrops. Take a look at the following diagram:

Note: OAS is an example of a token

A blockchain startup is building their dApp on EOS Blockchain. They want to airdrop tokens. The company has a Total Supply of Tokens equal to 1 billion. They keep 20% of all tokens for themselves and airdrop the remaining 80% to all EOS Token Holders.

Currently, most of the airdrops on EOS use the genesis snapshot and your balance during it.

If the airdrop is 1:1, then you’ll receive one token, because you had 1 EOS during the genesis snapshot. Alternatively, 25 tokens if you had 25 EOS. It doesn’t matter if you don’t own these EOS anymore. It’s important what you had during the snapshot.

So the company airdropped 800 million tokens and kept 200 million of the SAME tokens for themselves.

At this moment we have the following result: 80% airdropped tokens without a value. How could this be a funding model?

Airdrop Funding Model

After the airdrop, the company still owns 20% of all tokens which are currently 200 million. These tokens are “put” to the market, and there is market valuation. Thus the market will determine if the product of the company (the dApp) and the tokens are valuable.

That is where the most exciting part is happening, and it is called the Feedback Loop.

The company has the incentive to increase the value of the airdrop. On the other side, we have token holders who have received free tokens. Suddenly the tokens are becoming to have some value, and as token holders, they have an incentive to improve the service. When doing it, they are not only bringing more value to the system and themselves but are also delivering value to everyone else — the remaining token holders which are part of the system too. The token holders have an incentive to involve new users which could potentially increase the demand and the value of the tokens for everyone in the system.

So how an airdrop could become a funding model for blockchain startups? The company owns 200 million tokens. When the market deems that the company, the project, the product, the tokens are valuable then potentially the price will go up.

Let’s say the price per token reaches $0.20 then the company will have 40 million dollars.

So, without doing an ICO with all the regulation currently occurring. Without receiving or claiming any money from the EOS Token Holders, and without any investors the company could manage to fund themselves from the airdrop. Even more, thanks to the feedback loop everyone is part of the system and they have an incentive for it and for themselves to become more valuable.

However, as with any new technology, idea, model, there are currently a few problems.

What are the problems the model is facing?

One of the first problems was the price of the RAM. For the companies to airdrop tokens in the EOS network, a RAM is required. Why?

That could be a whole new story for those who are not familiar with how the EOS Blockchain work, but long story short — RAM is used to store data in an in-memory database, and to use it somebody should pay for it.

In the case with the airdrops this somebody is the company airdropping the tokens. In July the prices were skyrocketing and in order to lower the cost of running dApps, the EOS Block Producers have voted to increase the RAM supply.

Though the airdrop funding model is still an infant for many people and there is a long way to go before it becomes established funding model, it has the potential to replace the ICOs which undergoes a crisis at the moment.

Let us know what you think in the comments below.

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Resources:

1. https://www.reddit.com/r/eos/comments/8oq0l5/an_eos_airdrops_yield_estimation/

2. https://steemit.com/eos/@eosdac/eosdac-airdrop-and-burn

3. https://www.reddit.com/r/eos/comments/8mshbu/why_eos_airdrops_will_massively_replace_ethereums/

4. https://www.sec.gov/news/public-statement/statement-nasaas-announcement-enforcement-sweep-targeting-fraudulent-icos-and

5. https://www.youtube.com/watch?v=ck_bDCNS-0E

6. https://www.youtube.com/watch?v=aueB23wPRb4

7. https://trybe.one/eos-airdrop-model-failed-what-can-dapp-developers-do/