You might be familiar with buying and selling cryptocurrencies, but have you tapped into the world of crypto airdrops?
Airdrops are essentially marketing strategies that are designed to build awareness and interest in a blockchain-based crypto project. As we set out to provide more information and explain what these are, we will also touch on the benefits that airdrops can bring to participants.
What is a crypto airdrop?
A crypto airdrop is when a project gives out its native coins or tokens for free as a marketing tool to generate hype, grow its network and gain wider adoption. On occasion, the tokens require small tasks such as following social media pages, and other times they are entirely free of engagement.
These tokens are then transferred to current or potential users' wallets for free in the hopes of drawing in more business. Airdrops gained significant momentum during the DeFi summer of 2020 and have evolved considerably, with major distributions from Layer 2 networks and decentralised protocols becoming increasingly common throughout 2023 and 2024. While handed out for free, some airdrops have been known to fluctuate in value over time.
Through distributing tokens, projects aim to increase their number of holders (a positive metric for up-and-coming projects) as well as broaden decentralisation by spreading ownership across more community members. In practice, however, some distributions become concentrated among professional airdrop farmers.
How do cryptocurrency airdrops work?
Some airdrops are planned in advance and outlined in a project's tokenomics, while others (especially retroactive ones) are announced later as a surprise reward to early users. While airdrops can range from project to project, they typically involve amounts of cryptocurrencies being distributed to eligible wallets. These are often on Ethereum Layer 2 networks like Arbitrum or Optimism, or on high-performance chains such as Solana and Polygon.
These tokens are usually distributed for free, however, users may need to perform specific tasks related to platform usage (like making transactions, providing liquidity, or engaging with the protocol) or hold certain tokens in their wallet.
A successful airdrop will see its recipients becoming active community members and genuine users of the protocol beyond just receiving free tokens.
What is the difference between an ICO and an airdrop?
While both are related to new digital currency projects, the major difference between the two is that airdrops are when tokens are distributed for free, while ICOs require participants to purchase the project's tokens with an outlined purchase price.
ICOs were primarily a fundraising mechanism that peaked in 2017–2018, while airdrops serve as both marketing strategies and community reward systems. Note that ICOs have largely been replaced by other fundraising methods in today's crypto landscape.
What are the different types of airdrops?
As mentioned above, there are several different types of airdrops: exclusive, bounty, holder, and retroactive.
- Exclusive airdrops
These airdrops are centred around active members of the community or early adopters. In exclusive airdrops, tokens are only sent to designated wallets based on specific criteria.
Arbitrum's 2023 airdrop is a notable example, distributing ARB tokens to users who had bridged funds and actively used the network before a snapshot date.
- Bounty airdrops
Bounty airdrops are when users need to engage in specific activities to claim their tokens.
This typically involves social media engagement (following accounts, joining Discord servers, retweeting posts, etc.) or completing educational tasks.
Projects might require proof of completion before distributing the tokens.
- Holder airdrops
This type of airdrop rewards users already holding specific tokens to thank them for their loyalty. The project's team will take a snapshot of wallet balances at a certain time and reward all wallets that meet the minimum criteria.
Recent examples include various Layer 2 tokens being distributed to Ethereum holders or DeFi protocol tokens being given to users of related platforms.
- Retroactive airdrops
This has become one of the most popular airdrop types, where projects reward users who have already interacted with their protocol before the token launch. Users receive tokens based on their historical usage, transaction volume, or engagement with the platform.
Notable examples include Uniswap (2020) and dYdX (2021). Rumours of an OpenSea airdrop have circulated for years, though no official token has been released.
The downside to airdrops
Naturally, there are ill actors out there who take advantage and have created airdrop scams. These scams might involve a "project" airdropping tokens into a wallet, but when the holder attempts to interact with these tokens, malicious smart contracts can drain their wallet or compromise their security.
Another example of an airdrop scam is a project enticing you to sign up for the airdrop by connecting your wallet to a malicious website, only to gain unauthorised access to your funds. These are typically conducted through fake websites and imposter social media accounts on Twitter (X), Discord, and Telegram that look very similar to legitimate projects but are in fact phishing scams.
It's important to DYOR (do your own research) when engaging in an airdrop, and know that a legitimate project will never require you to send funds to "unlock" tokens, provide your seed phrase or private keys, or connect to suspicious websites. Always verify official project channels and be cautious of unsolicited airdrop announcements.
Another downside to airdrops is that projects can create an incorrect impression of adoption. If thousands of tokens are distributed to thousands of wallets, this might cause the project to appear more active and adopted than it actually is.
When evaluating a project, ensure that it has genuine trading volume and active usage that reflects the number of token holders. If there are many holders but minimal genuine activity, consider this a significant red flag.
Lastly, many airdrop recipients immediately sell their tokens upon receiving them, which can create significant selling pressure and price volatility for new projects. This "airdrop farming" behaviour has led some projects to implement more sophisticated distribution mechanisms and vesting schedules.
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