A lockdrop is a form of allocating tokens to a large network. It's similar to Airdrops, but Lockdrops are revamped Airdrops that require some loyalty from users to get free tokens. In a lockdrop, users wager a token for a set amount of time and receive their wagered tokens and another token upon release. For example, token holders of a specific network like SOLANA can lock their SOL tokens using a smart contract .
The longer your funds are closed, the more tokens you will receive from the new network once it is launched. This is just like fixed deposit, but the terms and duration are variable.
The duration of the assignment is irregular. The tokens are locked in a smart contract and the return is set pro-rata – the more and the longer users wager, the more they get back. The purpose of lockdrops is to incentivize users. When users tie a portion of their tokens to the security of a blockchain network, they become more curious about its success.
Lockdrops are formed via smart contracts. With each token that is sealed or locked, another token is produced. After the start of the network, the user can claim his seed capital and the new tokens. Another option is for users to show their support for the project by submitting their token address and receiving a smaller number of tokens in return.
Commonwealth Labs first introduced the idea of a lockdrop on their Edgeware network and the Polkadot blockchain . Edgeware's Lockdrop announced that it has sold more than 90% of its tokens via Lockdrop in 2019.
Lockdrops vs Airdrops
We've already explained the difference between the two, but it's important to understand how both work. Let's take a look.
Lockdrops: Users lock a certain number of tokens (e.g. 50 XYZ tokens of a given token) in a smart contract before the token is released. You will get your 50 XYZ tokens and some free PQR tokens when the token PQR is released. The more and the longer users wager XYZ tokens, the more they get in return.
Airdrops: This is where users communicate with the project by testing it on the testnet, providing liquidity, or performing other activities appropriate to the use case. Based on these activities, they receive free tokens.
The main difference is that lockdrops require a higher stake. Users could get an airdrop as motivation for supporting the protocol. In the event of a lockdrop, users must stake their coins with a unique protocol and pay an option price while they are staked.
According to its official post, Edgeware was the first protocol to introduce the lockdrop process in 2019. It circulated 90% of its tokens via lockdrops and only 10% belonged to the team. Users locked ether in a trusted “lockdrop-user contract” that unloaded ETH security after three to 12 months. Users were also able to “signal” rather than lock their ETH – essentially signaling their intention to join the Edgeware network and effectively receive an airdrop. However, these users received less dividends and could not act as validators on the network.
According to the official document, Astroport incorporates the most useful components of the six-year development of the Ethereum blockchain and deploys them on Terra. It is a money market protocol that distributes 7.5% of its token issuance via a lockdrop.
According to the official post, Mars is an on-chain lending platform built on Terra and controlled by a decentralized community of users and developers. It circulates tokens with a lockdrop process similar to that of Astroport. Users locked UST as collateral in Red Bank for 3-18 months. The longer a user blocks their UST (in three to 18 months), the more MARS tokens they have received.
Are lockdrops beneficial?
As already mentioned, the Edgeware network was the first lockdrop project. At the time of writing, no other projects are planning lockdrops. Still, a thriving lockdrop could be leveraged again if the community of participants is useful and diverse. The crypto world is full of rewards and shocks at the forefront of invention.
A lot of the trial and error projects they do is an ordeal to see if it works. They drive gambling and experimentation. But if it flourishes, it will lead us to many more. The lockdrop method is spreading and only the future will tell us more about its profitability.
There are two goals with lockdrops: a tighter user base and bypassing the token dump associated with airdrops. These things are difficult to judge. It is important here that users should always participate in a lockdrop if the project appears profitable, safe and robust. Go for the lockdrop if you can commit to it long-term.
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