What is a crypto airdrop? Insights into token distribution and investor opportunities

Understanding crypto airdrops: A marketing strategy for blockchain projects

Airdrops gained popularity in the early 2010s as a way for pranksters to send unsolicited images to unsuspecting individuals. In the fintech realm, a similar concept is employed to generate buzz around newly launched cryptocurrency projects, a marketing technique known as crypto airdrops. 

“In an airdrop, you would open your crypto wallet and find the airdropped item there, almost like receiving a surprise birthday present in the mail,” explained Gregory Keogh, Senior Vice President of Customer Success at Curios, a white-label NFT marketplace.

A crypto airdrop is a marketing approach utilized by blockchain-based projects where digital tokens are distributed for free to active members of the blockchain community. This method involves directly depositing tokens into users’ crypto wallets.

At the crossroads of blockchain technology and guerrilla marketing, these public initiatives aim to boost awareness of a startup's platform or product and promote the adoption of its native token. 

“This is often an exciting way to launch a network,” noted Winston Robson, co-founder and CEO of the metaverse marketplace WeMeta, who added that airdrops can be strategically aimed at potential early adopters.

For instance, NFT marketplace LooksRare distributed its tokens to users who had engaged in transactions on OpenSea, the leading platform in this space. This tactic created significant buzz within the community, but it did not position LooksRare as a sustainable competitor to OpenSea. While many were thrilled by the substantial rewards, some, including Robson, opted to cash out. The situation changed when the founding developers did the same, withdrawing an estimated $30 million, as reported by Cointelegraph. Although the developers denied any allegations of a rug pull, the incident alarmed investors, causing the token’s value to plummet by 15%.

While crypto airdrops are frequently used to promote new projects, they can also serve to reward loyal community members. A notable example is the 2021 Ethereum Name Service airdrop, which distributed tokens to existing ENS domain holders based on a formula that considered how long their domains had been active.

Different types of crypto airdrops

Crypto projects employ various types of airdrops based on their specific goals. Some may utilize this promotional strategy to unite a community after a hard fork in a network, while others aim to provide support to first-time users. Additionally, airdrops can serve as a response to intense market competition. Fortunately, there are several methods to deliver guaranteed tokens to users' digital wallets.

Holder airdrop

Holder airdrops reward users who possess a certain number of tokens at the time of the promotion. This is determined by a snapshot of user wallets taken at a specific date or over a defined period. The rewards go to those who meet or exceed a certain threshold. An example is the NFT-to-token swap platform Sudoswap, which plans to launch its governance token, SUDO. Holders of NFTs from its sister application, Oxmon, or OXMON tokens will receive the initial distribution.

Standard airdrop

In a standard airdrop, users only need to sign up for an account, with no additional tasks required. The main strategy is to act quickly, as the token supply is often limited and distributed on a first-come, first-served basis. For instance, the decentralized exchange RabbitX has implemented standard airdrops to reward new users who register on its platform.

Bounty airdrop

Bounty airdrops involve recipients performing small tasks or favors in exchange for rewards. Companies typically require minimal promotional efforts, such as signing up for newsletters, following specific social media channels, engaging with recent posts, or participating in live forums. For example, the Foodie NFT platform One Rare set up a nine-step eligibility list for a $75,000 giveaway, which included following their social media accounts, tagging friends, and adding accounts to a watchlist.

Hard fork airdrop

When a protocol undergoes a hard fork, creating two distinct platforms, developers may airdrop new tokens to existing users as a way to transition them to the new network. A notable example is ETHPoW, a proof-of-work chain that split from Ethereum after its shift to a proof-of-stake system during an event known as The Merge. Similar to holder airdrops, users only need to hold the original token.

Raffle airdrop

In cases where a project announces a limited number of rewards but receives an overwhelming response, it may choose to implement a raffle mechanism to randomly select winners, known as a raffle airdrop. This method can also complement any of the previously mentioned airdrop types. Recent examples include gaming platforms like Revv, Wolf Game, and Phantom Galaxies, which collectively distributed $500 worth of their native tokens to 100 lucky winners.

Exclusive airdrop

Exclusive airdrops reward users based on their engagement with a project rather than merely the size of their wallet. This can include factors like time spent on the platform, funds spent on non-token activities, or overall participation in community forums. A well-known example is Uniswap’s airdrop of 400 UNI tokens to each of its long-term users, regardless of whether they held any tokens.

What is the purpose of a crypto airdrop?

Tim Haldorson, founder of a crypto marketing agency, specializes in helping businesses create airdrops from the ground up. The primary aim is to expand a platform's user base while minimizing the likelihood of token recipients engaging in large sell-offs.

“Crypto airdrops are an effective method for new projects to differentiate themselves and rapidly increase awareness,” said Haldorson, who is also the CEO of Lunar Strategy. He emphasizes the importance of preventing users from flipping their tokens right away.

Airdrops can specifically target early supporters, current community members, or highly engaged users. Developers must determine the best approach to attract the audience that can offer the most value to the project at its particular stage, along with the best incentives to encourage public interest.

“The goal of an airdrop is to provide long-term benefits to the recipients,” Haldorson explained. A prevalent strategy in the decentralized finance (DeFi) sector is to airdrop tokens to users who hold cryptocurrencies from competing platforms, as they represent the ideal audience and are more likely to engage with the project after discovering it through the airdrop.

“However, substantial user growth typically follows projects that are backed by a strong team and possess a clear forward-looking vision.”

Risks associated with crypto airdrops and how to mitigate them

The old adage about "too good to be true" still holds when it comes to free offers from companies, including crypto airdrops. Here are some common risks to be aware of when participating in airdrop campaigns.

Phishing scams and fake crypto airdrops

Fake crypto airdrops often present themselves as tokens with significant monetary value, either being automatically deposited into wallets or available for "claiming" by entering wallet information on a third-party website. These scams may originate from brand impersonators or even other users on cryptocurrency exchanges.

Scammers frequently gather personal information under the pretense of offering fake airdrops, enabling them to gain access to wallets and steal cryptocurrencies and private keys.

How to avoid: Always conduct thorough research on the source of any airdrop before engaging with unknown tokens. Gregory Keogh advises, “If you find new NFTs or cryptocurrencies in your wallet, it’s generally best not to interact with them unless you know their origin.” Engaging with malicious airdrops can lead to your wallet being compromised if you interact with their smart contracts to transfer or sell the tokens.

Rug pull scams

Rug pull scams occur when a Web3 startup promises crypto airdrops to potential investors, claiming long-term value or benefits for those who purchase additional tokens. However, these projects often lack genuine intent, leading to a swift decline in token value once the startup abandons the project, leaving investors with worthless assets.

How to avoid: Before making any further investments in a startup offering crypto airdrops, scrutinize its on-chain security measures, token fee structures, and overall project objectives. Be cautious of code vulnerabilities in smart contracts, opaque trading or selling fees, and an absence of a clear product roadmap.

Key crypto airdrops

Crypto airdrops first emerged with the Auroracoin project in 2014 and have since expanded significantly, being utilized by many major players in the cryptocurrency space. Here are a few noteworthy airdrops that helped raise awareness of the practice and made a significant impact on the industry.

Bitcoin Cash

In August 2017, Bitcoin Cash executed a hard fork airdrop after separating from Bitcoin. This marked one of the first major forks in the Bitcoin network, allowing users to receive 1 Bitcoin Cash (BCH) for each Bitcoin (BTC) they held. At its peak in December 2017, BCH reached a value of over $4,300.

Uniswap

In September 2020, Uniswap airdropped Uniswap tokens (UNI) to over 250,000 early users of its exchange platform. Eligible recipients were those who had conducted at least one transaction on the platform prior to the airdrop, each receiving a minimum of 400 UNI. Within two days of the airdrop, the value of UNI soared by 160%, garnering significant attention during this period.

Stellar

Recognized as one of the largest airdrops in history, Stellar collaborated with Blockchain.com to distribute $125 million worth of Stellar Lumens (XLM) to users of Blockchain Wallet starting in November 2018. This partnership made Stellar Blockchain.com’s first airdrop partner after the launch of the Blockchain Airdrops program in October 2018. The initiative aimed to encourage users to explore cryptocurrency while boosting wallet engagement.