Retroactive airdrop farming: How to prepare yourself for 2022

Posted: 20 January 2022 3:37 pm
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Here's how to game the system and potentially earn yourself some tokens.

Being early to a new DeFi ecosystem can be very profitable.

Early adopters of Uniswap, Yearn Finance and Curve received airdrops of free tokens, simply for using those platforms.

The Uniswap airdrop tokens were worth a cool $17,600 at their peak, while a single Yearn token was worth as much as $90,000 this year. More recently, DyDx airdropped tokens to its users, with some earning six-figure sums.

These protocols are staples of DeFi, so it's kind of like getting rewarded to use Netflix, Amazon or Twitter.

Not a bad outcome for using something that was already handy.

But why?

The purpose of these airdrops varies.

Sometimes it is to distribute governance tokens to a loyal user base. In other cases the airdrops are actually sent by competing platforms who are trying to lure awayaware users and their precious liquidity.

Either way, the user stands to benefit.

There is now a niche of DeFi users who actively hunt these airdrops, using a process known as retroactive farming.

The idea is that if you are early enough to use a new DeFi protocol, you have a chance of being rewarded for doing so. But the catch is that airdrops are not guaranteed, so you may end up spending money on gas fees with no reward.

The word retroactive in this context is important. In order to be eligible, you had to be a user of the platform before the airdrop was announced. This distinguishes retroactive airdrops from other airdrops which are typically announced beforehand in order to build hype and attract users.

Let's take a closer look at how retroactive farming works, how to identify opportunities as well as a list of potential airdrops ahead.

Retroactive farming 101

In early September, decentralised derivatives platform DyDx announced plans for an airdrop of governance tokens to existing users.

Twitter soon exploded with stories by users who said they had "gamed" the airdrop and wound up with massive gains as a result. The value of those tokens might exceed $1,000,000 over time.

So how did they do this?

It's fairly simple really. Those users guessed DyDx would do an airdrop, then traded strategically to maximise any potential rewards.

According to several users, the process essentially involved wash trading. Traders quickly opened and closed positions repeatedly in order to increase their trade volume.

The idea is to look like you are trading, but in reality, you close a position so quickly that there is no meaningful exposure to market movements, in either direction.

This enabled those sneaky folks to get access to a potential airdrop without having to expose their capital to market volatility.

To further game the system, some people did this across multiple wallets, ensuring that they would receive multiple airdrops.

So when it was announced that the airdrop would be issued to individual wallet addresses based on volume, some owners enjoyed a payday that's bigger than the typical annual salary.

Gaming the system may seem ethically questionable. However, it is fairly common practice in DeFi, where financial incentives are the primary tool for driving adoption and acquiring users.

But before you go YOLOing your life savings, keep in mind airdrops are never guaranteed. The rules used to assess eligibility also vary between platforms, so even if there is an airdrop, you could still miss out.

The risks

Retroactive farming can result in a nice payday, but it isn't completely free.

You need to invest time, allocate capital, pay for gas fees (this part can really add up), risk your funds in a new protocol and then cross your fingers that an airdrop actually happens.

You risk losing your funds through a rug pull (devs steal your funds) or spending so much on gas fees that the airdrop doesn't cover your expenses.

In the case of the DyDx airdrop, there were even legal barriers that came into play. US users were excluded from the airdrop over SEC issues.

Farming retroactive airdrops is another case of balancing risk with reward. Fortunately some of these platforms are highly useful anyway, so they can be worthwhile even without an airdrop

Opportunities: What to look for

There is no single method to reliably tell us if a platform will retroactively airdrop a token, but if we examine the tea leaves we can see a few potential candidates.

Arbitrum and Optimism

Arbitrum and Optimism are the 2 leading layer-2 solutions for Ethereum. Both are likely to become prominent within the ecosystem and both are yet to issue a token. A popular theory is that onboarding funds and then using them on a compatible DeFi application should be enough to qualify for an airdrop, should either choose to go down that route.

Arbitrum currently has the biggest range of compatible dapps and coins, including well-known names such as Aave, Curve and Cream Finance. You can onboard funds using its official token bridge.

Optimism has fewer compatible products, although they include powerhouses Uniswap, Synthetix and 1inch. Again, you can bridge assets using the official bridge.

Tip: Using either protocol should cut down your gas fees substantially, compared to using the standard Ethereum mainnet. You can then use onboarded funds to access other potential airdrops.

OpenSea

OpenSea is the world's largest NFT marketplace by trade volume, which has led it to become a cornerstone of the wider NFT ecosystem. It does not currently have a token, unlike several other competitors such as Rarible (RARI) and SuperRare (RARE) – the latter did a retroactive airdrop to users when it launched its token.

The NFT market is quickly becoming saturated. With major brands such as Coinbase, FTX and even Visa announcing plans to open their own NFT marketplaces, OpenSea may need to become more competitive to retain users. Given the fact that similar services use a token, a retroactive airdrop seems possible.

Bonus: Nifty Gateway is another NFT platform with similar airdrop potential to OpenSea.

Paraswap

Decentralised exchanges (DEX) are the low-hanging fruit of the retroactive airdrop game.

After Uniswap began the trend in 2020 by airdropping tokens, many DEXs have followed, notably SushiSwap (SUSHI), Curve (CRV) and 1inch (1INCH).

Paraswap is an EVM-compatible DEX, meaning that users of Ethereum, Binance Smart Chain, Avalanche and Polygon can all use it. It currently does not have a token, which is highly unusual for a DEX. It's a solid candidate for a retroactive airdrop.

Tip: Use a blockchain with low fees, such Polygon or Binance Smart Chain to use Paraswap.

Next steps

Remember that retroactive airdrops are not free. You still need to spend money on gas fees to use these platforms, as well as any costs associated like trading fees or purchasing an NFT. There is also no guarantee that any of these platforms will retroactively airdrop tokens or what the requirements for eligibility will be. It's a potentially risky strategy.

That being said, if you are an active DeFi user many of these platforms will already be familiar to you, especially Arbitrum and Optimism, which exist to help reduce gas fees on Ethereum and in turn allow access to some of these other protocols.

Interested in cryptocurrency? Learn more about the basics with our beginner's guide to Bitcoin, dive deeper by learning about Ethereum and see what blockchain can do with our simple guide to DeFi.


Disclosure: The author owns a range of cryptocurrencies at the time of writing

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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