Remember when one day UniSwap just decided to drop 400 UNI tokens to 250,000 early users? That’s a famous example of a cryptocurrency airdrop. Crypto airdrops these days are a surefire way to raise curiosity about an upcoming crypto project.
It is a marketing tactic where early investors raise awareness about the project on social media and are rewarded with free tokens in return. Sometimes developers may just drop tokens without any warning in the users’ wallets. Nothing can compete with the excitement of receiving a surprise gift, right?
The primary goal of a cryptocurrency airdrop is the marketing of the project and the newly minted token. While generally individuals have to complete some tasks for getting the tokens, it is not necessary and there have been times when networks have just dropped tokens in user wallets.
How Do Crypto Airdrops Work?
Crypto airdrops may seem like a strange concept but it is not very different from traditional marketing tactics. Simply put, it is just a promotional strategy used by developers to market their cryptocurrency projects. A cryptocurrency is useless if no one knows about it. Crypto airdrops solve this problem by raising anticipation about the upcoming launch of the project.
It is a low-cost marketing strategy where developers just incur the cost of minting and distributing the tokens for free to the investors. They may or may not stipulate that the recipient in return promote the project on social media or join its discord server or any other forum. This helps in raising awareness about the token’s upcoming Initial Coin Offering(ICO).
Types of Cryptocurrency Airdrops
Standard Airdrop
This is one of the simplest and most popular types of crypto airdrop. Here, participants simply have to express their interest in the airdrop and give a valid wallet address for the same. Generally, no other information is required and tokens are given on a first-come-first-serve basis.
Standard airdrops often have a supply limit and one user can receive only a certain amount of tokens.
Bounty Airdrop
Bounty airdrops are service-oriented airdrops tied to the performance of certain tasks by the users. Generally, this involves some promotional activities for the company or project by the users. Users may be required to sign up for a newsletter, post about the project on social media or interact with posts related to the project.
In exchange, users are given points which correspond to the number of tokens they would receive. They may also get a referral bonus for inviting other users or signing up for the newsletter.
Holder Airdrop
In holder airdrops, users who have a certain amount of holdings are rewarded. Since wallet and other blockchain information is publicly available in a decentralized ledger, information can be viewed at any time and accordingly, tokens are given to users who have reached a threshold amount. This ensures that only the investors who meet certain balance requirements get the tokens.
Hard Fork Airdrop
A hard fork is an event where a protocol branches off its original code and the two split into two separate platforms. In such a situation, developers of the hard fork platform airdrop new tokens as a way to get users of the original platform to come to the new hard fork platform.
Raffle Airdrop
Any of the other crypto airdrop methods can be combined with a raffle system for raffle airdrops. It usually happens when the number of individuals interested in an airdrop exceeds the number of airdrops the company was planning. A lottery mechanism is then set up and a fixed number of wallets are randomly selected via the raffle to receive the airdrop.
Exclusive Airdrop
Exclusive airdrops occur when certain selected individuals are given the airdrop. This is usually done to reward certain users for their time logged on to a project, money spent on non-token activities or active engagement with the project’s forum and social media channels. Since exclusive airdrops are a way of rewarding those most engaged with the project, airdrops may often be deposited in wallets that don’t hold any crypto tokens.
Cryptocurrency Airdrop Pros
The important question here is- what is the benefit of airdrops in the crypto industry? Why would any firm incur the cost of distributing tokens for free to random people? Well, turns out that if done strategically, a crypto airdrop can have several advantages both for recipients and the issuing firm.
Rewarding Loyal Users
Cryptocurrency airdrops are a fast and instant method of rewarding users who have been loyal and engaged with the project. The possibility of an increase in the value of airdrop tokens also encourages the early receivers of the airdrop to stick around with the project.
Inexpensive Marketing
Crypto airdrops almost always have a marketing aspect. Free tokens given to a specific set of investors raise buzz about the project. Further, some crypto airdrops may ask interested individuals to participate in raising awareness about the project on social media by engaging with posts or posting or tweeting about the project.
Adoption of New Tokens
Cryptocurrency airdrops are a method of distributing tokens in a manner that may not be possible in an open market. Such cost-incurring activities are essential to raise awareness about and encourage the adoption and use of new crypto tokens.
Cryptocurrency Airdrop Cons
While the idea of receiving free tokens for some small tasks may be tempting, cryptocurrency airdrops are not without problems. There have been times when the topic of airdrops has been in the news for all the wrong reasons.
Security Threats
Network and wallet safety is a major concern regarding crypto airdrops. It is all the more suspicious if some projects require you to connect your wallet with shady websites to redeem the airdrop. Your wallet may be compromised at such a website as hackers may be able to access your password and keys.
Pump and Dump Schemes
There is no guarantee of the quality of a project. “Rug pull” schemes are a common way of scamming investors via crypto airdrops. Investors are first lured by the offer of free tokens and once the price of the token rises, the rug is pulled and the developers dump large amounts of the token in the market, crashing its price and then promptly exiting the project.
Low-Quality Projects
Some investors may not like the idea of airdropping cryptocurrency itself. They view such schemes as low-quality projects that get low-cost marketing for the project by giving free tokens to random people who don’t even contribute much to the project.
Lack of Liquidity
The free airdropped tokens may essentially be worthless if they cannot be openly traded on a marketplace. The tokens are of no use if they don’t have the required liquidity to be easily and openly traded on a crypto exchange.
Cryptocurrency Airdrop Examples
UniSwap
In September 2020, UniSwap airdropped 400 UNI tokens into the wallets of 250,000 early users of the UniSwap platform. The only eligibility criteria were that users must have made at least one transaction on the platform before September 2020. This move helped the platform not only bring awareness about the token but also raised its value by 160 per cent.
OpenDao
In 2021, OpenDao distributed SOS tokens to NFT creators and buyers who had previously made transactions on the OpenSea NFT marketplace. There were no tasks that were to be completed and all the users had to do was manually claim the reward from OpenDao’s website. This helped it significantly raise its social media following and at one point, OpenDao’s market cap was even greater than $250 million.
Bitcoin Cash
Bitcoin Cash’s airdrop is an example of a hard fork airdrop as discussed in earlier sections. BCH was one of the first forks in the Bitcoin network and its airdrop promised recipients 1 BCH for each BTC owned. BCH was valued at around $4,300 during the airdrop’s peak at the end of 2017.
Are Crypto Airdrops Risky?
Crypto airdrops can be risky if you get involved with any random project without first checking it. There are no checks on the quality and legitimacy of projects and the possibility of scams is high in the case of crypto airdrops. Fake crypto airdrops are used to gain access to the investor’s wallet and eventually steal their keys and cryptocurrency.
Rug pull schemes are another common scam in the airdrop world. The value of the tokens can quickly crash in such scenarios leaving the investors with worthless tokens in their possession.
Many investors are also simply lured by the offer of free tokens and do not weigh the cost and benefits of participating in such a project. The airdrop may not be worth it if the project requires the completion of time-consuming tasks.
It is, therefore, important to read the terms and conditions of the project before participating in a crypto airdrop to know about the requirements and restrictions of the project.
The number one thing you should always do before engaging with random airdrops is to research the project and the source of the tokens thoroughly. Read about the project’s goals, policies, and airdrop terms and conditions and check the project’s on-chain security measures.
While crypto airdrops can be a fun way to get new tokens for free, the concept is also rife with the possibility of misuse. Due diligence is, therefore, an essential part of engaging with cryptocurrency airdrops.