A lockdrop actively distributes tokens across a vast network, resembling ICOs or airdrops but bypassing the necessity to raise funds. In this method, token holders from a specific network, like Ethereum, lock their Ether using a smart contract. The quantity of tokens participants receive from the new network at its launch directly depends on how long they lock their funds. The longer the funds remain locked, the greater the number of tokens participants will acquire. Here’s a detailed explanation on lockdrops and airdroops.
Who introduced lockdrops?
Commonwealth Labs first introduced the concept of a lockdrop on their Edgeware network and Polkadot blockchain. Edgewares drop claimed to have given away more than 90% of their tokens via lockdrop in 2019.
Smart contracts create lockdrops, generating a new token for every token locked in. Once the network launches, users can claim both their original funds and the new tokens. Alternatively, users can log their Ether address to show support for the project, opting to receive a lower token reward.
Edgeware founders Raymond Zhong and Dillon Chen said that they felt like the lockdrop would get the right set of experimenters compared to Airdrops or ICOs.
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How are lockdrops created?
Lockdrops represent a novel and strategic approach to token distribution in the blockchain space, leveraging smart contract technology for secure and transparent transactions. This method offers a unique blend of immediate rewards and long-term incentives for participants, fostering a more engaged and committed community. Here’s a detailed breakdown of how lockdrops function:
- Smart contract utilization: Lockdrops are enabled through advanced smart contract technologies, ensuring a secure and automated process.
- Token generation mechanism: Each time a token is locked in by a user, a corresponding new token is generated, promoting a growth-oriented ecosystem.
- Post-launch claims: After the network’s successful launch, participants are entitled to claim back their original tokens, along with any additional tokens accrued during the process.
- Supporting the project: Users can opt to support the project further by registering their Ether address; this, however, results in receiving a reduced token reward.
- Security and reliability: The integration of smart contracts in lockdrops brings an additional layer of security, making the process more dependable and resistant to tampering.
- Long-Term Incentives: This method is designed to not only provide immediate rewards but also to encourage long-term engagement and investment in the project, crucial for its sustained growth and success.
- Community management and engagement: These factors play a crucial role in lockdrops, as they foster a more involved and dedicated community.
- Incorporation of NFTs: Lockdrops can also be adapted for the distribution of Non-Fungible Tokens (NFTs), broadening their applicability beyond conventional tokens and allowing for the tokenization and distribution of unique digital assets.
- Impact on NFT marketplaces: This system can significantly influence NFT marketplaces, as lockdrops could be used to distribute NFTs, potentially enhancing liquidity and market activity by introducing new and unique assets into the ecosystem.
What are the main benefits of lockdrops?
Lockdrops offer numerous benefits, seamlessly integrating with the crypto community. The decentralized and permissionless nature of lockdrops increases security, a significant advantage for the crypto community. This method ensures tokens are distributed as widely as possible, unaffected by fluctuating market conditions. Moreover, lockdrops align well with regulatory compliance, minimizing the risk of shutdown and instilling confidence within the crypto community.
Adding to these benefits, lockdrops foster a sense of ownership and commitment among participants in the crypto community. This active participation not only strengthens the token’s position in the market but also contributes to the overall health and dynamism of the crypto realm. By promoting equitable distribution and engagement, lockdrops are instrumental in shaping a more inclusive and vibrant crypto ecosystem.
Lockdrop vs. airdrop
The first method of widely distributing tokens was through airdrops. In 2017, a banking service; OmiseGO distributed tokens to its community. Since then, the ecosystem has become aware of a few issues with this way of distributing tokens. Most notably, this method does very little to foster an active community past the initial ‘buzz’ phase. With an airdrop, in many cases, people don’t even notice their wallet has received tokens, or they are quickly sold on upon reception.
This lack of engagement contrasts sharply with the approach of Initial Coin Offerings (ICOs), where participants are typically more invested and aware, leading to a more engaged community.
An active community of followers is essential to ensure a successful project. A lockdrop means that people must temporarily lock up their assets and are therefore somewhat committing to the project’s longevity.
The main benefits of lockdrop when compared to previous distribution methods:
- Finds the most useful participants most likely actually to use the token
- Increased security with a decentralized and permissionless nature
- Regardless of the state of the market, the tokens have the widest distribution possible
- Strong chance of regulation compliance and no worry of being shut down
What’s next for lockdrops?
The lockdrop has been a complete success for the new Edgware project, with billions of dollars already locked into the project. This proves that people are willing to invest and lock in their tokens for innovative projects. The crypto space will continue to develop new ways of distribution to ensure that tokens reach the most useful people possible as projects start out their journeys.
Frequently asked questions
What are lockdrops?
What is an airdrop?
What is the difference between a lockdrop and an airdrop?
How are lockdrops created?
What are the main benefits of lockdrops?
How do I participate in a lockdrop?
How is the duration of the lock-up period determined in a lockdrop?
What happens if I want to unlock my tokens before the designated lock-up period ends?
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