Unlike an airdrop, a lockdrop simplifies token distribution. Although both distribution mechanisms are similar, a lockdrop promotes greater participation in the network because free tokens are distributed only to people who are truly interested in the activity or project.
What is a Lockdrop?
A lockdrop is a token distribution mechanism similar to an airdrop, used by decentralized organizations or crypto projects to distribute their new tokens. With this mechanism, tokens are only offered to people who show interest in the project by locking in their existing tokens.
For example, you want to receive new tokens from the newly launched Project A, so you offer your Ethereum (ETH) tokens to Project A to be locked for a while to show your interest. After the lockup period, you will receive your ETH and new tokens.
During the lock period, your locked tokens are not burned or blocked. Instead, they are only locked into a smart contract to show your genuine interest in getting the free tokens and participating in the project. This differs from what can be obtained through an airdrop, where tokens are distributed to multiple random crypto wallet addresses, usually with no prerequisites or financial commitments.
Due to the simple nature of a lockdrop, most of the people who receive the new tokens are those who are invested in the success of the project. This can lead to a stronger network of project participants.
Lockdropping is a method of token distribution where interested parties offer tokens to show future interest or new tokens to be delivered at the end of the lock-up period. The tokens to be locked are usually a default cryptocurrency, such as Ether (ETH). And the deal is usually sealed by a smart contract, which produces new tokens based on the locked tokens.
Your locked-in tokens cannot be transferred or resold until the lock-in period has passed, as defined in the smart contract that binds the lock-in. After the lock-in period, which can last several months or years, the locked-in tokens are released. The value of tokens may increase or decrease during the lock-in period. This is usually due to project success and market volatility.
The pledged tokens are distributed proportionally to all network participants based on the value they provide to the network. In general, the number of new tokens you will receive will be affected by the number of tokens you have blocked and how long they have been blocked.
Although lockdrops and airdrops are token distribution mechanisms, they work differently.
Airdrops are often used to raise awareness of the project. An airdrop distributes tokens to a specific group of people, usually for free. Distributed tokens may or may not be locked; if they are locked, the lock period will probably be shorter than a lock point.
A lockdrop, on the other hand, is a distribution mechanism where participants offer a specific cryptocurrency to be locked in exchange for future project tokens. Locked tokens are generally non-transferable for a specified period. A smart contract attached to the participation determines the duration of the lock-in period. Expected new tokens are usually delivered after successful project funding.
In a lockdrop you invest, expecting locked tokens in the future, while in an airdrop you get free tokens which may or may not be locked.
Benefits of Lockdrops
Lockdrops are gaining massive popularity due to the huge benefits they offer you as a participant or founder of a project.
1. Distribution to the most interested participants
Most cryptocurrencies seek to build a strong decentralized network and often use various mechanisms to achieve this. For example, a lockdrop is one of the mechanisms you can use to distribute tokens to more people who are truly interested, thus creating a stronger decentralized network.
2. Line incentives
By locking tokens for a certain period, token holders are encouraged to hang in there, wait patiently, and contribute to the advancement of the token project. In this way, the value of the token increases, the holders profit and the project is successful. The possibility of a maximum return on investment (ROI) is more than enough to entice most contributors to participate in a blockchain.
3. Low barriers to entry
Lockdrops often have low barriers to entry, as participants only need to contribute a small amount of cryptocurrency to participate. This can make it more accessible to more people, thus expanding its reach. In addition, lockdrops are usually transparent, as only a cryptocurrency wallet is required in addition to tokens.
4. Theft protection
Since projects using lockdrops are new, there is a risk that an attacker could steal your tokens. However, lockdrop participants will keep their existing tokens, as the smart contract usually holds the tokens of timed participants. Existing tokens are safe because their value is not stored.
2 Popular examples of Lockdrops
Several blockchains in the cryptocurrency and blockchain space have occurred in recent years. Many popular projects arose with the closure, or incorporated it as they progressed.
In 2019, Commonwealth, a governance startup, launched a lockdrop to distribute EDG tokens, a utility token for Edgeware, a smart contract platform. Edgeware, a product of Commonwealth, was created to manage, fund and build decentralized communities, and its launch heralded the blockchain method.
Parties interested in holding EDG had to hold Ether (ETH) to participate in the lockdrop. 90% of the five billion EDG tokens generated were distributed via lockdrop. Participants received EDG tokens based on the number of Ether tokens they had locked and the duration of that lock. Participants could lock their tokens for three months, six months, or one year or link wallets containing their ETH to signal chain – this lock option was less profitable.
In December 2021, Astroport launched a lockdrop to distribute 7.5% of 1 billion ASTRO tokens. Seventy-five million ASTRO tokens were awarded to users who staked Terraswap LP tokens for a trial period.
During the seven days of the block, Astroport reported that 23,379 unique Terra wallet addresses deposited over one billion Terraswap LP tokens. In addition to reclaiming their tokens and receiving ASTRO tokens, lockdrop participants became founding members of the Astral Assembly, Astroport’s governing body.
Board the enclosed train
Lockdrops demonstrate that projects can only involve people who are truly interested in the project. This token distribution mechanism will most likely grow in popularity over time, as it ensures that new free tokens reach only useful participants who are willing to invest in the success of the project.