Cryptocurrency Airdrop: What Is It and How Does It Work
What Is a Cryptocurrency Airdrop?
A cryptocurrency airdrop is a marketing strategy that involves sending coins or tokens to wallet addresses. Small amounts of the new virtual currency are sent to the wallets of active members of the blockchain community for free or in return for a small service, such as retweeting a post sent by the company issuing the currency. The ultimate goal of a crypto airdrop is to promote awareness and circulation of a new token or coin.
- Airdrops are a way to promote a new project, reward early adopters, or increase awareness of a platform or product.
- A project uses a snapshot to identify eligible recipients, and then distributes the tokens directly to their wallets.
- For participants, airdrops are a way to receive free tokens that can be traded or held for future gains. For projects, airdrops can help increase user engagement, visibility, and token circulation.
- Some examples of airdrops include:
- LooksRare: Airdropped 12% of its total token supply to users with a combined 3 ETH trading volume or more on Opensea.
- Uniswap: Airdropped 400 UNI tokens to each wallet that had used its exchange.
- Bored Apes Yacht Club (BAYC): Rewarded BAYC NFT holders with a Serum NFT.
What Is a Crypto Airdrop?A crypto airdrop is a marketing strategy used by blockchain-based projects that involves divvying out free tokens en masse as part of a broader promotional initiative. This is done as a direct deposit into a user’s crypto wallet.
At the intersection of blockchain and guerilla marketing, these public campaigns are designed to increase awareness about a startup company’s platform or product and encourage widespread adoption of its native token.
“This is often an exciting way to launch a network,” said Winston Robson, co-founder and CEO of metaverse marketplace WeMeta, adding that airdrops can be used strategically to target likely early adopters.
Although crypto airdrops are commonly employed to promote new projects, some existing projects use airdrops to reward longtime community members. The 2021 Ethereum Name Service airdrop, for example, awarded tokens to existing ENS domain holders based on a formula determined in part by how long their domains had existed.
What Is the Point of a Crypto Airdrop?
The ultimate goal of any crypto airdrop is to grow a platform’s user base in a way that doesn’t encourage a big sell-off by token recipients.
“Crypto airdrops are a great way we help new projects stand out and increase awareness rapidly,” said Tim Haldorson, founder and CEO of crypto marketing agency Lunar Strategy.
Since airdrops can target early supporters, existing members or highly engaged users of a project, developers need to figure out which route will attract the audience that can contribute most to the project at its unique stage and how to best incentivize the public to want to learn more.
“The goal with an airdrop is to give long-term value to the people who receive the airdrop,” Haldorson said, noting that a common strategy within the DeFi space is to airdrop tokens to users holding crypto from competing platforms doing similar things. They are often the ideal audience and are more likely to contribute to the project after learning about it via the airdrop.
How to Qualify for a Crypto Airdrop
Qualifying for a crypto airdrop depends on the type of crypto airdrop being conducted. Companies planning crypto airdrops may look or ask for certain criteria, including the following:
- Valid crypto wallet address
- Following a company’s social media accounts
- Holding a certain crypto token
- Trading previously on a specific crypto exchange
- Expressing interest in joining a raffle
While some airdrops are sudden or exclusive, others are announced ahead of time to create more engagement. Staying up to date on crypto news and companies of interest is the best way to catch wind of upcoming airdrops. It’s also helpful to understand the different types of crypto airdrops and what each one entails.
Types of Crypto Airdrops
Crypto projects vary in their preferred choice of airdrop, depending on their end game. There’s a variety of techniques to parachute guaranteed goods into a user’s virtual estate.
Standard Airdrop
In a standard airdrop, no tasks are required aside from signing up for an account. The key here is to get in quick, as there may only be a certain supply of tokens tied to the release of a new project, doled out on a first-come-first-serve basis. The decentralized exchange RabbitX has used standard airdrops to reward new users who sign up for its platform.
Bounty Airdrop
For bounty airdrops, companies typically require some low-lift promotional work, with rewards handed out to those willing to sign up for a newsletter, follow specified social media channels across platforms, interact with a project’s recent post or simply log on to a live forum. Foodie NFT platform One Rare listed a seven-step to-do list for eligibility in a $50,000 giveaway, which included following the company’s accounts across social media, tagging friends and adding accounts to a watchlist.
Holder Airdrop
A holder airdrop rewards users who are ‘holding,’ or have accumulated, a certain amount of tokens at the time of the promotion. This is determined by a community-wide snapshot taken at a certain point in time of user wallets, which can occur on a specific date or during a set time span. A reward is gifted to those who have met or exceeded a threshold amount. After NFT-to-token swap platform Sudoswap launched its own governance token, users holding NFTs of its sister application Oxmon — OXMON tokens — received the first batch.
Hard Fork Airdrop
When a protocol branches off or hard forks from its original code, splitting into two separate platforms, developers airdrop the new coins as a crumb trail to convert native users. An example of a hard fork airdrop would be ETHPoW, a proof-of-work chain going separate ways with Ethereum since it transitioned to a proof-of-stake system in an event known as The Merge. Like holder airdrops, these simply require users to hold the original token.
Exclusive Airdrop
Exclusive airdrops often reward a user’s time logged on a project, money spent on non-token activity or level of engagement within a forum. Exclusive airdrops reach those with empty wallets and deeper extra-curricular investment in a project. A famous example includes Uniswap’s generous airdrop of 400 UNI tokens to each of its long-standing users, regardless of holding status.
Raffle Airdrop
If a startup announces a fixed number of rewards but receives an overwhelming response, it may choose to implement a lottery mechanism to deliberate the winners selected at random, dubbed a raffle airdrop. This option can also be utilized as an add-on to any of the previous airdrop methods. For example, Wolf Game offered $500 worth of its native token WOOL to 100 lucky winners in 2022.
How Do Crypto Airdrops Work?
Once a company decides that a crypto airdrop is the best way to jumpstart its blockchain platform or product, there are a few steps to follow.
1. Launch a Crypto Airdrop Campaign
The first step toward making a crypto airdrop happen is to launch a public campaign. Most commonly, widespread outreach is achieved across forums and social media platforms such as Discord and Twitter. Ideally, the news energizes commotion around a platform’s debut or a newly launched feature — as well as the size of the prize.
2. Gather a List of Qualified Airdrop Recipients
As the campaign picks up traction, companies compile a list of potential token recipients. This can be done in different ways, such as collecting the wallet addresses of interested parties or snapping a screenshot at a set point in time to qualify a user’s eligibility by specified, metric-based criteria. If an airdrop is specific to users of a platform prior to September, for example, then the screenshot would include the wallet addresses of active users from that designated timeframe.
Sometimes companies gather additional information, like an email address, at this stage — especially if the company hosting the airdrop is seeking to expand its contact list.
3. Airdrop Crypto Via Smart Contracts
After determining a batch of recipients, companies typically facilitate the airdrop through a smart contract, or a self-executing program that automates transactions. This program transfers tokens from the company’s treasury wallet and distributes them to select participants, with no action required on the recipient’s end. At this stage, companies typically publish their transaction block results to further promote the project and prove that the airdrop actually happened.
Crypto Airdrop Pros
Crypto airdrops offer companies a number of benefits, including being a cost-efficient way to give a newer blockchain product a boost.
Fast and Instant
Since they’re built to appear in users’ wallets automatically, crypto airdrops make for a quick and instantaneous solution to inform users of a new project. Crypto airdrops require no prior action from recipients and are self-executed, thanks to smart contracts.
Low-Cost Marketing
Free products — especially when distributed at specific times, events or to enough users — will quickly generate buzz around a project. Recipients may be naturally inclined to learn more about the token and affiliated project, and discuss these stakes with other curious recipients or crypto exchange users.
Establishes Loyalty and Userbase
Airdrop tokens could increase in value over time, providing long-term incentives for early recipients who stick around with the project. As value rises, this may give users reasons to buy, sell and trade additional tokens with others and subsequently grow a project’s userbase.
Crypto Airdrop Cons
Although crypto airdrops are a convenient method for drawing attention to a product, there are some pitfalls to watch out for.
Tokens Are Finite
The amount of tokens a project will be able to distribute will depend on each project’s budget and goals. While too few airdrops could mean publicity remains low for the project, too many airdrops could lead to it running out of tokens completely.
Loyalty Isn’t Guaranteed
Upon receiving airdrops, some users may immediately decide to sell their tokens for profit and not engage further with the project. Even with enough airdrop distribution, a project may not be able to properly lift off from low engagement.
Airdrops May Decrease Token Value
If a majority of airdrop recipients decide to sell their tokens in a certain timeframe, this can cause a project’s tokens to significantly drop in value. This instance will not only hurt current investors, but also the project and its brand as a business.
Crypto Airdrop Risks and How to Avoid Them
The general too-good-to-be-true principle that comes with free company offerings still applies for crypto airdrops. Here are some of the common risks to know about participating in crypto airdrop campaigns.
Fake Crypto Airdrops and Phishing Scams
A fake crypto airdrop tends to look like a token or multiple with a large monetary value, either dropped into a wallet without notice or able to be “claimed” by inputting wallet information into a third-party site. These types of airdrop scams can be from brand impersonators, or even from other users on crypto exchanges.
Scammers have been known to collect information under the guise of faux-airdrops to gain access to wallets, stealing crypto and private keys.
How to Avoid
Do your own research on an airdrops’ source before engaging with any sudden tokens. “If you have a crypto wallet and notice any new NFTs or crypto in there, it’s generally best to not interact with those if you do not know where they came from,” Keogh explained. “Malicious airdrops can take over your wallet if you interact with their smart contract to transfer them out or to try and sell them on a marketplace.”
Rug Pull Scams
In a rug pull scam, a Web3 startup may offer crypto airdrops to prospective investors and make promises on long-term value or perks for those who buy more tokens — with no intent to keep the project. Instead, investors may see a quick drop in value on their tokens as the startup is abandoned, and are left with a wasted investment.
For example, NFT marketplace LooksRare airdropped its token to users who had completed transactions via OpenSea. While many were excited by the large prize amount and some decided to cash out, there was a change of tune when the founding developers had the same idea. (According to Cointelegraph, the core team withdrew an estimated $30 million at the time.) Even though the developers denied accusations of a rug pull, this spooked investors, tanking the native token’s value by 15 percent in the aftermath.
How to Avoid
If a startup provides crypto airdrops, check its on-chain security measures, token fee policies and project goals before making any further token investments. Be aware of any code issues in token smart contracts, non-transparent trading or selling fees or a lack of product outline overall from these entities.
Notable Crypto AirdropsCrypto airdrops debuted through the Auroracoin project in 2014. Since then, they’ve grown in scale and have been used by some of the biggest names in crypto. These are just a few airdrops that brought awareness to the practice and left an impact on the crypto industry.
Bitcoin Cash
As a result of its branch from Bitcoin, Bitcoin Cash distributed a hard fork airdrop in August 2017. Bitcoin Cash was one of the first major forks in the bitcoin network, guaranteeing users 1 Bitcoin Cash (BCH) for each bitcoin (BTC) owned. At the airdrop’s peak, BCH was valued at over $4,300 in December 2017.
Stellar
Noted as one of the largest crypto airdrops of all time, Stellar partnered with Blockchain.com to airdrop $125 million worth of Stellar lumens (XLM) to Blockchain Wallet users beginning in November 2018. Stellar became Blockchain.com’s first airdrop partner following the rollout of the Blockchain Airdrops program in October 2018. Blockchain.com distributed the airdrop in an effort for users to try out crypto attached to the new program and increase wallet usage.
Uniswap
Uniswap rewarded over 250,000 early users of its exchange platform with an airdrop of Uniswap tokens (UNI) in September 2020. Those who had made at least one transaction on the platform prior to that September were eligible for the airdrop, with recipients gaining at least 400 UNI. Two days following the airdrop, the value of UNI increased by 160 percent, gaining the token attention during its airdrop window.
APECoin
On March 17, 2022, APECoin airdropped 10,000 APECoins each to Bored Ape Yacht Club NFT holders, making 15 percent of the total supply available. The airdrop witnessed fluctuating prices, but it ultimately increased APECoin’s market capitalization to $2.4 billion. Although some everyday NFT holders made hundreds of thousands of dollars, the airdrop seemed to favor insiders and founders of the Bored Ape ecosystem.
Arbitrum
Arbitrum conducted an airdrop with 625,000 eligible recipients, leading users to claim over 42 million ARB tokens within the first hour on March 23, 2023. The event garnered so much attention that it actually caused Arbitrum’s airdrop page to crash. As a result of the airdrop, the number of daily active users on Arbitrum peaked at around 600,000 and the number of daily transactions exceeded 2.5 million.
- LooksRare: Airdropped 12% of its total token supply to users with a combined 3 ETH trading volume or more on Opensea.
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