Written by: Efren Medina
Play to Airdrop (P2A) is a recent tactic used by web3 projects to mass market their game to users of the project’s platform. It typically involves an incentive leaderboard structure with token rewards based on an individual’s ranking of final points. Airdrop points are given for engagement, in-game achievements and sometimes have potential reward multipliers for holding NFTs, creating social media posts and/or joining a project’s Telegram or Discord server.
The idea behind P2A is that a project will use this method to reward early users with an airdrop of tokens. There is no web2 to web3 conversion requirement for users that have connected their wallets and players will ideally stand behind the game as a loyal user. Whether or not this tactic is successful depends on careful execution of reward structure, tokenomics and playability of the game.
One of the most successful P2A campaigns was done by Pixels on Ronin Network, which boasted over 100k daily active users (DAUs) during its P2A campaign and remains one of the most played web3 games daily.
Given the recent rise in popularity of the P2A meta, many web3 projects have followed suit. As such, I wanted to take this opportunity to provide information regarding legal considerations that teams with a nexus or player base within the United States should consider as they structure their campaigns.
Best Practices
1) Structure Tokens with Clear Utility from Day One
a. Best Practice: Projects should ensure that tokens offer immediate utility within the platform from the moment they are created. This can include the ability to purchase in-game items, skins or battle passes, unlocking features or premium content.
b. Why? Tokens that serve practical functions can reduce the chance of being classified as securities under the Howey Test. Being classified as an unregistered security can lead to expensive litigation and penalties.
c. Practical Example: Instead of suggesting future value of a token, projects should emphasize that the token is a tool for gameplay or platform interaction.
2) Avoid Speculative Messaging in Promotions
a. Best Practice: Use neutral language when marketing the airdrop—avoid suggesting that the token could increase in value and avoid announcing exchange listings in marketing materials.
b. Why? Speculative language could attract SEC scrutiny by implying an expectation of profits (which then could lead to the token being classified as a security).
c. Practical Examples: (1) Say, “Earn tokens to unlock premium features” rather than “Hold tokens to benefit from future profit.” (2) “We are happy to see the community’s interest in listing xyz token on Coinbase. Our focus remains on building value through platform utility and user engagement. We do not endorse or facilitate any trading or speculation on token prices.”
d. On every exchange listing announcement, comment and/or include disclaimers reiterating that the token’s purpose is for use only and not for speculative investment.
3) Use Tiered Participation or Restricted Features for U.S. Participants
a. Best Practice: Allow U.S. users to participate in the airdrop but limit their access to higher-risk features like staking until further compliance measures are in place.
b. Why? While some projects choose to geo-block all U.S. participants in their entirety, this can lead to locking out a large portion of their following. A more practical approach would be to analyze each feature and determine if Geo-blocking is necessary on a case-by-case basis.
c. Practical Example: U.S. users can earn tokens for in-game use but cannot participate in staking.
4) Implement Vesting Schedules or Token Lockups
a. Best Practice: Introduce vesting schedules or time-locked tokens to prevent immediate trading and/or dumping on secondary markets.
b. Why? This reduces speculative behavior and creates longer term engagement, which could potentially lower the risk of tokens being perceived as an investment vehicle.
c. Practical Example: Users receive tokens over time, encouraging them to remain engaged with the platform over the length of the unlock period.
5) Self-Certification via Terms of Service with Clear disclaimers
a. Best Practice: Require participants to agree to Terms of Service that include a self-certification clause which confirms they are eligible and acknowledges the token’s intended use.
b. Why? While not foolproof, this provides some protection for the project by showing that they made good faith efforts to comply with eligibility requirements. c. Practical Example: Before users are able to participate, they must acknowledge that: (i) the tokens are for platform use only; and (ii) that the project does not endorse any trading or speculation.
Five Simple Steps to Get Started:
Before you plan your Play to Airdrop strategy, you should plan out these steps:
1) Define your token’s purpose and utility – clarify the token’s role within your platform, whether it will be used to unlock features, purchase in-game items or offer rewards.
2) Map out your airdrop campaign – outline the distribution mechanism, eligibility criteria, and incentives. Consider vesting schedules or time-locked tokens.
3) Evaluate participation by Jurisdiction – Decide which features to restrict for participants in stricter jurisdictions. Use geo-fencing selectively to manage compliance without alienating users.
4) Draft your Terms of Service and Disclaimers – Write clear and concise Terms of Service that participants must agree to before joining the campaign.
5) Consult with Legal Counsel Early – Obtaining legal advice early on demonstrates good-faith efforts to align with relevant regulations, minimizes the risk of oversight, and can reduce penalties if enforcement actions occur. Regular legal guidance also ensures the project makes good faith efforts to stay compliant with evolving regulatory frameworks.
Final Thoughts
As a corporate attorney and avid web3 gamer, I understand the importance of balancing regulatory compliance with the practical realities of engaging a vibrant player community. This unique perspective allows me to design solutions that meet legal requirements while ensuring a seamless user experience.
Given the number of projects that rely on P2A strategies to rapidly expand their player base, it is crucial to balance compliance with practicality. Because this space is still evolving and exists in a legal grey area, there is no one-size-fits-all solution. That is why I strongly recommend consulting with a qualified legal counsel before launching any airdrop campaign, to ensure the project remains compliant within a well-coordinated, comprehensive strategy.
Disclaimer and Contact Information
The content on this blog is for informational purposes only and does not constitute legal advice. While I strive to offer accurate and helpful insights, the information shared here may not reflect the most current legal developments. Reaching out to me through this blog does not establish an attorney-client relationship.
If you need legal assistance, I encourage you to Contact IBL. Please mention this article so we can tailor our conversation to your specific needs.
Thank you for reading and we look forward to exploring what the world of web3 gaming has in store for us.