How to make money on retrodrops?

What are retrodrops?

Retrodrop is a retroactive airdrop distributed in the project’s native token. This is one of the ways of rewarding for using a crypto application, testing it, or other project-related activity at an early stage of its development.

One of the first retrodrops was carried out by the decentralized exchange (DEX) Uniswap in September 2020, distributing 400 UNI to every blockchain address that ever interacted with the platform’s smart contracts.

Tokens of the popular L2 solutions Optimism and Arbitrum were also distributed on the basis of a retrospective reward, that is, for actions that were useful in the projects’ opinion in the past.

For what actions are retrodrops awarded?

In most cases, the criteria for a retrodrop are actions that result in financial costs for the user in a certain period of time.

Such criteria are called multipliers. Let’s look at the most popular of them.

Deposit to the network or application. The more assets in circulation, the better for the entire ecosystem. This also includes useful liquidity related to interaction with individual applications. This is the blocking of assets for staking, farming, lending and in liquidity pools.

Network IDs, domains. Identification of addresses and giving them a personal character by registering domains or obtaining special IDs.

Voting in DAO. A fundamentally important activity in which the user keeps his tokens on his balance sheet without selling them and voting with them for innovations in the ecosystem, including proposing his own development ideas.

Creation and launch of smart contracts. Experiments and new developments in the ecosystem are always welcome. Encouraging and attracting developers is one of the most difficult tasks.

Creation multisig-addresses. It is assumed that such operations are carried out by professional teams, funds, groups of investors. They are a valuable member of the ecosystem.

Transaction volume in dollar equivalent. The more dollar transactions that happen on the network, the better it is for everyone in terms of statistics and other network metrics.

Number of transactions. The higher the number of transactions, the greater the total amount of commissions paid. This is a source of income for validators and individual projects on the network.

Network or application usage time. The longer and more often a user is in the ecosystem, the more valuable he is to the project.

Interaction with a large number of applications. Projects value researchers and involved users. For example, Optimism valued and encouraged engagement with applications even outside its network.

Donations. Projects encourage grant investments at an early stage of development, when instead of venture rounds, teams turn to collecting donations from a caring community.

Who are drop hunters and what is multi-accounting?

Drophunters are airdrop hunters. In the context of retrodrops, these are users trying to predict which projects will reward their active community in the future through the distribution of native tokens.

This category of crypto market participants expects that the active use of individual applications in ecosystems such as Base, Linea, zkSync and Starknet will correspond to potential retrodrop multipliers.

To maximize profits, users resort to creating multiple blockchain addresses called sybil accounts – an activity called multi-accounting. The essence of this approach is for one person or group of people to manage an entire network of supposedly unrelated addresses that may qualify for an airdrop in the future. Thus, in 2023, an unknown person created 21,877 addresses in the zkSync second-level Ethereum network.

The teams behind the airdrops consider the practice of multi-accounting to be harmful. As part of the fight against sybil accounts, projects analyze network activity and deny rewards to such users. For example, the Optimism developers excluded about 17,000 ETH addresses from the list for the OP token retrodrop.

What strategies do drop hunters use?

Large retrodrops of Uniswap, Optimism and Arbitrum showed that reward hunting has become a separate type of professional activity in the crypto market aimed at making a profit. Just like in trading and investing, there are many strategies. The following trends can be identified in retrohunting:

Use of specialized software. This direction in the Binance report is called airdrop farming – automatic execution of actions in blockchain networks and individual decentralized applications to increase the chances of receiving an airdrop.

Such software is divided into installable software, Web2-based resources, and even telegram bots. This approach allows you to create tens, hundreds and even thousands of addresses that potentially meet the retrodrop criteria. For example, two market participants consolidated $3.3 million worth of ARB tokens into two addresses, received from 1,496 wallets – such an amount is very difficult to create manually.

Manual airdrop formang strategy. This approach is limited by the resources of a person or group of people, because creating hundreds of addresses will require an enormous amount of time. However, the strategy is considered relatively safe, since detection of such accounts can be difficult.

Combined. This is a way to diversify risks. Hunters divide their accounts into performing actions using manual and automatic strategies simultaneously. This potentially reduces risks, but at the same time increases the possible return on investment due to the number of accounts and time savings.