Why Pure Token Grants Are a Failing Strategy

Airdrop farmers and grant recipients are rational economic agents. They sell immediately, creating permanent sell pressure and zero protocol loyalty. This turns your token into a funding instrument, not a governance or utility asset.

• >90% sell-off post-vesting/TGE is common.
• Grants fund competitors, not your ecosystem.

Adopt the venture capital playbook: long-term alignment through cliffs and vesting. This filters for builders, not mercenaries. The goal is to create stakeholders, not beneficiaries.

• 1-year cliff, 4-year vest is the new standard.
• Tie disbursements to milestones and usage, not just deployment.

Grant recipients lack skin in the game, leading to low-quality governance participation or outright delegation to whales. This creates a facade of decentralization while control remains concentrated.

• <5% voter turnout from grant recipients is typical.
• Proposals are low-signal marketing stunts, not technical upgrades.

Shift from grants for potential to rewards for proven usage. Fund teams that already drive protocol revenue, TVL, or active users. This turns grants into a scaling mechanism for existing success.

• Use retroactive funding models like those pioneered by Optimism.
• Pay out in streaming tokens based on real-time metrics.

Indiscriminate grants drain the treasury of its most valuable asset: the native token. This dilutes existing holders and destroys the treasury's future purchasing power, creating a vicious cycle of selling to fund operations.

• Leads to downward price pressure and loss of community trust.
• Makes future fundraising rounds more difficult and dilutive.

For critical, high-cost infrastructure, use traditional equity investment or SAFTs. This brings professional oversight, long-term capital, and avoids immediate token market dilution. Save the token treasury for community-aligned, usage-based incentives.

• Separate capital stacks: Equity for builders, tokens for users.
• Attract institutional partners who provide more than just capital.

Protocols like Compound and SushiSwap pioneered token emissions to bootstrap TVL, creating a mercenary capital problem.\n- >90% of liquidity is typically farm-and-dump, providing no long-term utility.\n- Grant programs become permanent subsidies, with emissions often exceeding protocol revenue.

Early-stage projects like Arbitrum and Optimism distributed large grants to attract developers, but retention was poor.\n- ~70% of grant-funded projects fail to ship a meaningful product or maintain it post-grant.\n- Grants become a one-time payment, failing to align long-term builder incentives with protocol success.

Airdrops to early users (e.g., Uniswap, Ethereum Name Service) often reward sybil attackers over genuine contributors.\n- Sybil clusters can capture >30% of airdrop supply, instantly dumping on the market.\n- The protocol gains no sustainable activity, only a short-term price pump followed by a -80%+ drawdown.

Successful programs like Polygon's ecosystem fund and Chainlink BUILD tie disbursements to verifiable, on-chain deliverables.\n- Tranched vesting releases capital upon hitting KPIs (e.g., TVL, active users, integrations).\n- Creates skin-in-the-game, ensuring grantees are financially aligned with long-term protocol growth.

Protocols are adopting SAFT-like agreements or warrants (e.g., dYdX's ecosystem trust) instead of pure token grants.\n- Provides governance rights and future token flows, not just liquid, sellable tokens.\n- Attracts professional teams thinking in multi-year horizons, not quarterly farm cycles.

Models like Optimism's RetroPGF and Ethereum's Protocol Guild fund contributions after they've proven valuable.\n- Eliminates upfront speculation on unproven teams and ideas.\n- Rewards verified impact (code, research, tooling) based on community sentiment, not grant committee predictions.

Pure grants attract mercenary capital that extracts value and exits, leaving your protocol with ~90%+ sell pressure post-claim. This creates a death spiral where real users are diluted.

• Key Metric: >80% of grant recipients are often one-time users.
• Real Cost: You pay for fake engagement and subsidize your own token dump.

Tie token distribution to verifiable on-chain contributions over time, not just wallet creation. This aligns incentives with long-term growth.

• Key Tactic: Use vesting schedules with quarterly cliffs based on metrics like TVL, volume, or active users.
• Example: Protocols like Optimism and Arbitrum use multi-round, criteria-based distributions to filter for real builders.

Throwing tokens at developers does not guarantee they will build something users want. You're funding activity, not utility.

• Key Failure: $100M+ grant programs often result in <10 sustainable applications.
• Root Cause: Grants solve the developer's funding problem, not the user's problem.

Treat grants like early-stage VC: provide capital plus dedicated engineering resources, go-to-market strategy, and integration support.

• Key Tactic: Pair a smaller upfront grant with milestone-based retroactive funding models pioneered by Optimism's RetroPGF.
• Real Alignment: You become a co-builder, not just an ATM.

Grant committees rarely measure ROI. This leads to political allocation and funds flowing to well-connected teams, not the most impactful ones.

• Key Metric: <1% of grant programs publicly audit their capital efficiency.
• Result: Ecosystem funds become a popularity contest, stifling innovation.

Define success with immutable, on-chain KPIs and use smart contract-based vesting that auto-pays upon milestone completion.

• Key Tactic: Use oracles like Chainlink to verify real-world data or protocol-specific metrics.
• Framework: Adopt a transparent dashboard (e.g., Dora Factory infrastructure) to track all grant performance publicly.