The Arbitrum airdrop: lessons in user acquisition and retention

Comparing the growth and user retention of Arbitrum with Polygon and Optimism: Lessons for ZKsync and Starknet's airdrops and other user incentive strategies.

It’s been more than half a year since the Arbitrum airdrop and the whole web3 community has learned a lot from it. A proof of that is how many dashboards there are in dune replicating its criteria for multiple protocols. The Arbitrum airdrop can be seen as a success, since it

  • Boosted user acquisition by 4x, lasting approximately 3 months.
  • Increased retention during the airdrop period, although this did not continue afterwards.

However, there's always room for improvement. Following Arbitrum as an example, this article is a general airdrop guide, exploring the effect that airdrops have on protocol users. We will also show that there's potential to optimize the selection of users for the arbitrum airdrop and extend its positive impact over time, lessons that can be applied to any reward system, like the potentially upcoming Starknet and Zksync airdrops.

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Arbitrum airdrop criteria 

The eligibility for the Arbitrum airdrop was determined via a point-based system, where users could earn points based on their on-chain activity. Once they reached a specified threshold of points, users became eligible for the airdrop. Check out this post for further details.

During the analysis, the analytics team went through the process of:

  • Identifying what actually generates value on their chain. For that, they used a first-principles definition of activities, rewarding or penalizing different behaviors
  • Collecting on-chain data related to those activities and analyzing the impact of designing a criteria for eligibility based on those activities

They reached the following categories:

Quoting the Nansen team:

Each “organic” activity earned positive (behaviors to encourage) or negative points (behaviors to discourage). The amount of tokens that a wallet received in the airdrop was a function of how many points it collected. In order to participate, a wallet had to hit a minimum threshold of three points. The more points earned, the higher the allocation claim.

An the amount of points given where the following: 

Positive criteria, one point each:

  • Bridging funds into Arbitrum 
  • Conducting transactions during two distinct months
  • Conducting transactions during six distinct months
  • Conducting transactions during nine distinct months
  • Conducting more than four transactions or interacting with more than four smart contracts
  • Conducting more than 25 transactions or interacting with more than 25 smart contracts
  • Conducting more than 100 transactions or interacting with more than 100 smart contracts
  • Conducting transactions exceeding in aggregate $10.000 in value
  • Conducting transactions exceeding in aggregate $50.000 in value
  • Conducting transactions exceeding in aggregate $250.000 in value
  • Depositing more than $10.000 of liquidity into Arbitrum
  • Depositing more than $50.000 of liquidity into Arbitrum
  • Depositing more than $250.000 of liquidity into Arbitrum
  • Bridging into Arbitrum Nova
  • Conducting more than three transactions on Nova
  • Conducting more than five transactions on Nova
  • Conducting more than ten transactions on Nova

Negative criteria, subtracting a point:

  • Every transaction occurred within a 48 hour period
  • Has a balance < 1 token cent of the day of the snapshot and has not interacted with more than one smart contract
  • Has a balance of < 0.005 ETH cent on the day of the snapshot

The criteria, as we can see, focus on rewarding users that have participated in the Arbitrum network consistently over time and been early adopters of new features.

Effect of the Arbitrum airdrop

The airdrop had two primary goals: 

  1. Reward the early community for their support of the project 
  2. Foster a stronger bond between users and the project. These users can include both existing members as well as newcomers.

Here, we will focus on understanding how well the airdrop achieved its second goal of fostering a bond between the project and its users. For this, we will study the effects of the Arbitrum airdrop in two distinct dimensions: 1) user acquisition and 2) user retention.

Effect on user acquisition

To understand the impact of the Arbitrum airdrop, we need to compare its results with similar projects. For this reason, we are presenting data for Arbitrum, Polygon, and Optimism pre and post-airdrop.

Arbitrum airdrop effect on user acquisition

In the chart, we can see that, originally, Optimism and Arbitrum had a comparable number of new users each month. This trend changed considerably at the time of the airdrop, when Arbitrum quadrupled  its user acquisition, with numbers almost comparable to Polygon.

Indeed, there's a significant boost in user acquisition that lasts for ~3 months, and then it slowly decays to match again the numbers of Optimism.

The impact is clear, and one question that arises from this data is: could a project prolong the effect of the boost over time by offering continuous rewards rather than a one-time airdrop?

Effect on user retention

User acquisition is worthless if those users do not stick with the project afterwards. For this reason, we have extracted the retention data from the cohort analysis from Token Terminal for each of the projects.

Arbitrum retention data from token terminal

In this cohort analysis, what we observe is the percentage of users returning to the project each month segmented by the month they joined the project. This makes it ideal for our analysis, as we can compare different behaviors for users joining at different times.

Now, we've categorized the data into pre-airdrop, during-airdrop, and post-airdrop periods.

Arbitrum retention data pre, during and post airdrop

By calculating the average of behaviors for each of the projects, we obtain the following:

Arbitrum airdrop effect on user retention

The data reveals the following: 

  • During the months of the airdrop, many users returned to Arbitrum, boosting the retention rate
  • However, the project couldn't maintain those figures post-airdrop. More importantly, the retention rate after the airdrop was considerably lower than before. 
  • This behavior is not seen in Optimism, suggesting that its airdrop might have attracted or impacted lower quality users than usual. As a result, they used the network but only for a brief period.

Several questions emerge from this, but two, in particular, resonate with us:

  • Can a project maintain the retention rate observed during the airdrop by offering continuous rewards?
  • Is there a way of improving the commitment of users who benefit from the airdrop?

The truth is that, given how the airdrop criteria were designed, the Arbitrum team successfully amplified activity on the platform during the airdrop period. This achievement was possible thanks to a detailed analysis of which KPIs/metrics were aligned with the project's objectives.

Nevertheless, the airdrop results show that none of the airdrop criteria directly improve the likelihood of someone staying on the platform. In contrast, modern web2 consumer companies diligently monitor their clientele and devise their churn models, an analysis that we ourselves have done in the past. This approach allows companies to predict which users are likely to leave the platform or which ones will depart regardless of any intervention. 

Perhaps, merging the analysis of the value added in the past with the probability of returning for a given user are the key to optimal incentivization. We could decrease the number of tokens distributed to users unlikely to contribute to the platform in the future. This more token-efficient approach might enable not just one, but perhaps three or four airdrops. This scenario is advantageous for everyone:

  • Users genuinely adding value to the protocol are rewarded over time, not just once.
  • The project extends the influence on user acquisition.
  • The retention rate remains stable post-airdrop, while still benefiting from the airdrop's initial surge.
  • The project creates a habit in users, increasing their propensity to return in the long run.

This would be what's called smart incentivization. 

Lessons for zksync airdrop and starknet airdrop 

We have examined the Arbitrum airdrop criteria and the eligibility requirements. Thanks to the thorough analysis for designing their airdrop, the Arbitrum team was able to:

  • Boost user acquisition by 4x, lasting approximately 3 months.
  • Increase retention during the airdrop period, although they couldn't sustain it afterwards.

Overall, it's been a success, with commendable alignment of the right metrics. However, there's still much room for improvement in terms of continuous engagement and increasing user retention. This leaves us wondering what the outcome might have been had smart incentivization been applied.

We will watch closely to see if potential upcoming airdrops, such as the ZkSync airdrop or the StarkNet airdrop, implement the lessons learned from this experience or even surpass the original results. 

PD: If you are a company looking to optimize your reward system, contact us!