Is the Ethereum Name Service (ENS) airdrop fair for early participants in order to prevent fake volume and manipulation by certain groups?

The Ethereum Name Service (ENS) recently announced the establishment of a DAO and the launch of a governance token of the same name, ENS, through an airdrop. Regarding its airdrop mechanism, some believe that it is worth emulating to prevent deliberate volume inflation by speculators; however, some venture capitalists have pointed out that certain early users who spent money registering domain names and were satisfied with the ENS product prior to the airdrop, now consider it completely unfair after the airdrop details were released.

The airdrop rewards have left some early participants feeling dissatisfied, even though they were quite content with ENS before. The issuance of tokens not only brings governance functions but also aims to incentivize adoption. However, in the crypto space filled with speculators, achieving perfection in this aspect remains a challenge.

Review of Dropbox's Referral Program

Dropbox grew by 3900% in the 15 months between 2008 and 2010. In 2008, it had around 100,000 users, which grew to 4 million in 2009, and reached 33.9 million users in 2017.

Dropbox's referral program was simple yet effective, offering additional cloud storage space to both the referrer and the referee. Basic users were rewarded with 500MB per referral, up to 16GB, while pro users received 1GB per referral, up to 32GB.

The straightforward referral rewards brought unprecedented success to Dropbox, with approximately 35% of their registered users coming from the referral program.

Challenges Faced by DAO Rewards

Similar promotional programs like Dropbox's are common in Web 2 startups, but the satisfaction with rewards in the DeFi sector seems harder to achieve. Adam Cochran, a partner at Cinneamhain Ventures, highlighted the challenges faced by ENS and DAO in their promotions.

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Let's talk about an interesting lesson from the $ENS DAO roll out, that we're familiar with in web 2 start ups, but haven't figured out how to change in defi yet:

"Reward Satisfaction"

— Adam Cochran (adamscochran.eth) (@adamscochran) November 3, 2021

1. Varied User Value

Some users hold higher lifetime value, but most companies define it based on the number of registrations or active users. For DAOs, users who engage in the community and governance are more valuable.

Airdrops define the value of each user, which some users may find unfavorable.

2. Diverse User Motivations

This is a common issue in the crypto space with too many speculators and bounty hunters. Those who registered for ENS with genuine intentions of using it for its intended purpose have no complaints about owning their domain names/identities, while speculators often lament not receiving enough token airdrops.

Some Web 2 startups also face similar problems. Before launching reward-based referral programs, they ensure that referred users have high-quality and maximum customer lifetime value (CLTV/CLV).

Users who genuinely recommend products they like bring real users, but when companies introduce referral rewards, the quantity of referrals increases while the quality decreases.

3. Different Reward Formats

Dropbox offers more free storage space, while many startups mistakenly give out cash rewards unrelated to the product, attracting a slew of low-quality registrations.

Adam Cochran cited an example where a company he advised stopped offering a $200 lottery reward to users and instead gave away $25 books related to their podcast. While the number of referrals decreased, the weekly audience increased, which was the right reward for users.

The challenge foreseen in DAOs and DeFi is that even with token rewards, users tend to sell them off quickly due to their intrinsic value, attracting speculators with aligned motivations. This is why Cochran believes that "Play-to-Earn" won't surpass pure gaming.

4. Different User Perspectives

Some users complain about the unfairness of ENS airdrops, claiming they bought several or even hundreds of domains early on. Cochran pointed out:

Would these users have considered buying domains unfair back then? No, otherwise they wouldn't have purchased them. They were satisfied with the transaction at the time: "Paid for a domain, got a domain." But now, they perceive that transaction as unfair.

New rewards make users believe that a transaction from a year ago was unfair, even if they were content with it before.

Cochran concluded that the token economy challenges in the crypto space are not just about competing with oneself but also competing against the negative user habits and perspectives cultivated in the crypto space over the years.