What is a Lockdrop?

A lockdrop is an upgraded version of an airdrop, and although it shares certain similarities with it, it also has a few added features that distinguish them. This is due to the fact that, unlike Airdrops, which distribute tokens to random wallets in the hopes that the recipients will be interested in them, lockdrop does not distribute free tokens. Instead, people who are interested in the token must make a small commitment by locking a particular token for a specific length of time and later receiving the remainder of the token as well as the other token once it is released.

For example, if a user wants to receive new tokens from a recently launched project, the user would have to offer Ethereum (ETH) to the project for it to be locked up for a specified length of time. This shows the user’s commitment, and once the lock-up period is over, the user would gain both the locked-up ETH and the new tokens altogether.

During the lockup period, the locked tokens are stored in a secure smart contract rather than being staked somewhere else or burned. The entire process shows your commitment to being a part of the project.

The concept was introduced by Commonwealth Labs, a governance-focused start-up founded by Drew Stone, Dillon Chen, and Raymond Zhong. The first implementation of the concept took place on their Edgeware network, which is a self-upgrading smart contract platform built on Polkadot.

How Do Lockdrops Work?

To show their interest in a specific future token, the interested party provides tokens that will be delivered and locked up. The locked-up tokens are usually predetermined cryptocurrencies like Ethereum (ETH), and they are typically stored by a smart contract, which mints new tokens based on the locked-up tokens.

The locked tokens are only stored; they are not staked, transferred, or resold until the locked period, which is determined by the smart contract and the length of time the user is willing to leave the token, has ended. After the time period given, which could be anywhere from a few months to a few years, the user will get their tokens back.

The promised tokens are also released to the participant according to the number of tokens they locked up and for how long the tokens were locked up.

What’s the Difference Between Airdrops and Lockdrops?

Airdrops and lockdrops can be easily confused with one another, but lockdrops contain certain features that distinguish them from airdrops. These features are also gaining lockdrops a lot of popularity, and some of them include:

Commitment

One main difference between airdrops and lockdrops is commitment. In lockdrops, the network or project requires interested users to show a certain amount of commitment before receiving the new token. Airdrops, on the other hand, give out tokens simply for supporting the protocol.

Community

Airdrops were mostly used for marketing opportunities. It was used to create a buzz among the community members and attract users. Lockdrop, on the other hand, is used to create an active and engaging community full of members that are interested in the success of the token.

Storage

With airdrops, tokens are not stored by the networks; they are usually issued by the networks to potential users or community members. Lockdrops, on the other hand, store the locked tokens through the use of smart contracts and release them once the lockup period is over.

Seamlessness

Unlike recent airdrops, which require certain users to do something like follow a social media account or join a Discord, all you need for a lockdrop is a crypto wallet and a token.

Why Use Lockdrop?

Lockdrops are gathering a lot of attention right now, and this is due to the certain benefits that they offer the users, participants, and the founder or development team. These benefits also serve to boost a lively and committed community for the network.

Active Participation

Lockdrops are one way developers and team members can ensure that their tokens are distributed to people who are genuinely interested in the token, thereby creating a much more decentralized network.

General incentive

The tokens dropped are kept for a set period of time and contribute to the project’s growth. This further leads to an increase in the value of the token, an increase in the holders’ gain, and the project’s success. The possibility of further gain is enough reason to participate in a lockdrop.

Accessibility

Lockdrops are usually easily accessible, as interested parties only need to lock down a small amount of cryptocurrency to participate. This makes it easily accessible to a wide range of people, thus increasing its reach.

Seamless

The seamless nature of lockdrops is one major benefit of using the concept. This is because users do not have to carry out a specific task before getting access to the service. All they need is a cryptocurrency wallet and a token.

Anti-theft

The security of the new projects might have gaps that malicious individuals might exploit. However, your stored tokens are safe since the smart contract usually holds the locked-up tokens and the token values are not stored.

How to take part in lockdrops

Lockdrops do not follow a strict formula. Instead, they depend on the network developers, but they all have these few steps:

• The project’s team announces the lockdrop and states the conditions.
• Interested users lock up stablecoins or other tokens like ETH or BUSD, depending on the network’s conditions.
• Once the lockdrop period is over, the users with stored-up collateral, get it back along with the token of the new project. The tokens are distributed based on how much collateral the user has locked up and for how long it was locked up. These two factors determine the number of tokens the user would receive.

Some Popular Lockdrops

There have been a few projects that have implemented the lockdrop concept. Some of them include Edgeware, Astroport, and Mars Protocol.

Edgeware Lockdrop

Source: Edgeware

Edgeware was the first project to employ the lockdrop mechanism. It did this in 2019, distributing 90% of its token allocation via lockdrops and sending the remaining 10% to the project’s development team. Users locked up Ether in dedicated lockdrop user contracts, and after three to twelve months, the stored ETH was released.

Other users were able to signal instead of dropping their ETH as collateral. This just showed their intent to be a part of the Edgeware network and essentially to receive an airdrop of the token. The users who signaled received fewer tokens and were unable to act like validators on the network.

According to the network, the lockdrop provided economic security and increased commitment from users. Edgeware believes that its lockdrop has resulted in the protocol’s token distribution being one of the most decentralized.

Astroport Lockdrop

Source: Astroport

This is a money market protocol project that issued 7.5% of the project’s tokens via lockdrop. It initially airdropped ASTRO, the base token, to Luna stakers as part of its first phase. Later on, Terraswap liquidity providers were able to lock their LP tokens for about two weeks in Astroport to earn a part of the future ASTRO rewards.

In the third phase, users locked their ASTRO and/or UST into the ASTRO-UST liquidity pool in order to bootstrap liquidity and facilitate price discovery.

Mars Protocol Lockdrop

Source: Mars Protocol

Mars Protocol is a non-custodial lending platform built on Terra. It used a lockdrop mechanism similar to Astroport. Interested users locked up UST as collateral in what they called “Red Bank” for 3–18 months. The users gained more Mars Protocol tokens for keeping their collateral locked up for a longer time.

After the participation phase, which lasted seven days, the liquidity bootstrapping auction for the Mars Protocol started. Users could commit MARS and/or UST to start a MARS and UST liquidity pool and facilitate price discovery.

Once the commitment phase ended, users’ liquidity tokens were locked for 90 days, making it possible for users to utilize MARS tokens without having access to them.

Are Lockdrops Worth It?

Lockdrops are still a fairly new idea. To know if they are worth using or implementing when trying to distribute a network’s token, one needs to know if they meet the needs of the user and the protocol.

A user should only participate in the lockdrop of a network if it looks promising and if the user is willing to commit to the project in the long run. This makes sure that the user can put their money to work in the most profitable way, which is the ultimate goal of every user.

The main goals of protocols, on the other hand, are to build a strong community and avoid token dumps caused by airdrops. Both are hard to assess, which makes it much harder to tell just how effective lockdrops are.