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    HomeAirdropsA Beginner's Guide to Lockdrops

    A Beginner's Guide to Lockdrops

    You may be familiar with airdrops , but even many users who understand cryptocurrency have never heard of or even participated in lockdrop.

    Lockdrops are the more nimble, less popular, but more effective cousin of airdrops. This beginner's guide will explain why investors and protocols should pay more attention to lockdrops and why you may be hearing a lot more from them in the future. We'll cover:

    • What are lockdrops
    • The difference between lockdrops and airdrops
    • How to participate in lockdrops
    • The three most popular lockdrops so far
    • If lockdrops are worth it

    Not sure what an airdrop is? Check out our article here .

    What are Lockdrops?

    Lockdrops are modified airdrops which require some commitment by the user to receive free tokens. In lockdrop you bet one token for a certain time and receive your pledged tokens and another token upon release. For example, you can bet ETH and receive the ETH and your own token once it is released. The tokens are locked in smart contract and your return is determined on a proportional basis - the more and longer you bet, the more you get in return. The aim of lockdrops is to incentivise users to 'put skin in the game'. If users lock up some of their tokens to run the network security, they will be more interested in its success.

    What is the difference between Lockdrops and Airdrops?

    In short, this is how lockdrops and airdrops work.Lockdrops : lock 100 ABC tokens into a smart contract before the XYZ token is released. You get your 100 ABC tokens and some free XYZ tokens when the XYZ token is launched. The longer and more ABC tokens you lock, the more XYZ tokens you get.Airdrops : interact with the project by trying it out on the test network, providing liquidity or other actions that are relevant to its use case. You receive free tokens based on these actions. You can also receive free tokens without having interacted with the project at all.The difference is that lockdrops require a higher degree of commitment . You can get an airdrop as a thank you for supporting the protocol, based on other tokens you own, or by using the protocol or test network - the monetary commitment is lower. On the other hand, for a lockdrop you need to bet your cryptocurrency with a new protocol (potentially risky) and incur opportunity costs while it is pledged, lockdrops are more suitable for building an engaged community while airdrops cast a wider net in terms of marketing . The former actively drives engagement, while the latter can create a quick ad that can also quickly disappear. Additionally, airdrops often sell quickly or even go unnoticed if the project is not high profile.

    How do you participate in Lockdrops?

    Lockdrops have slightly different mechanisms depending on the protocol, but they all have the following steps in common:

    1. The minutes announce the lockdrop and its terms.
    2. Lock your collateral time into a smart contract. This can be ETH, stable coin or other tokens, depending on the requirements of the protocol.
    3. At the end of the lockdrop period, you receive your collateral and token allocation. Tokens are distributed on a pro-rata basis: the more collateral you lock up for longer, the more tokens you get.

    Additional optional steps are:

    1. Once you have had time to lock in their collateral (step 2), you can commit their future blocked tokens to the liquidity pool . For example, you can pledge ETH as collateral and receive token A as a reward. Once the time window for pledging ETH is over (but before you receive token A as a reward), you can commit your A tokens to a liquidity pool.
    2. By locking in your liquidity, you get extra rewards and help the protocol find the price.

    The three most popular Lockdrops in 2022

    Edgeware Lockdrop

    Edgeware was the first protocol to implement the lock mechanism in 2019. It allocated 90% of token allocation via lockdrops and only 10% went to the team. Users were able to lock ether into a special "lockdrop user contract" that releases ETH collateral after three to twelve months. Users were also able to "signal" instead of locking up their ETH - which essentially means signaling their intent to participate in Edgeware's network and essentially getting an airdrop. However, these users received fewer rewards and could not act as validators in the network.From a protocol perspective, this provided economic certainty and a higher degree of user engagement. Furthermore, Edgeware claims that its blocking helped achieve the protocol, one of the most decentralized token allocations according to the Gini coefficient. However, it is debatable how successful lockdrop was compared to simple airdrop. You can learn more about Edgeware lockdrop in their documentation .

    Astroport Lockdrop

    Astroport is a money market protocol that issued 7.5% of token allocations via lockdrop. In the first phase ASTRO was transferred to LUNA stakers. During the second phase, liquidity providers of Terraswap could lock their LP tokens into Astroport to receive a share of future ASTRO rewards. Liquidity could remain locked for up to two weeks. In the third phase, users committed their ASTRO and/or UST to the ASTRO-UST liquidity pool to enhance liquidity and enable price discovery.

    Mars Lockdrop Protocol

    Mars Protocol is a non-custodial lending platform for Terra . It distributes tokens with a locking mechanism similar to Astroport. Users locked UST as collateral in the so-called Red Bank for 3-18 months. The longer the tokens remain locked, the more boost the user gets.After an initial seven-day participation phase, Mars Protocol held its auction to boost liquidity. Users can commit MARS and/or UST Launch a liquidity pool on MARS/UST and allow price discovery. After the end of this engagement phase, the consumer liquidity tokens were time locked for 90 days. This way you can use your MARS reward tokens even though you don't have access to them.

    Is Lockdrops worth it?

    Let's look at this issue from a user perspective and from a protocol perspective.Users want to deploy their capital in the most profitable and least risky way. Thus, the use of your collateral such as ETH or UST should outperform the returns you get in a "risk-free" market such as Curve Finance . We would need to collect a lot more data to find out if this is the case because lockdrops have variable betting periods.As a rule , should participate in the blocking of the protocol, if the protocol looks promising and you want to commit to it long-term.The Protocols have two objectives: a more engaged user base and Avoiding airdrops related token dumping . Both are difficult to evaluate. For example, both Mars Protocol and Astroport appreciated after their lockdrops closed. However, the locked up collateral has yet to be released and they benefited from the spike in LUNA's price. It is therefore difficult to judge whether lockdrops are more efficient than airdrops.In conclusion, lockdrops are becoming increasingly popular, with new protocols such as Bastion and Retrograde release their own versions. Our recommendation is that you continue to pay attention to this increasingly popular token distribution mechanism.

    https://coinmarketcap-com.translate.goog/alexandria/article/the-beginner-s-guide-to-lockdrops?_x_tr_sl=auto&_x_tr_tl=bg&_x_tr_hl=bg&_x_tr_pto=wapp

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