What is an airdrop?
Airdrop is the practice of distributing tokens or digital assets for free to a specific audience. It is a common strategy used by blockchain projects to attract attention, promote adoption, decentralization, and reward early supporters.
Airdrops usually send tokens directly to an individual’s wallet or account (or require the user to actively claim them) and can be a one-time or regular event.
Those who wish to receive an airdrop usually need to meet certain conditions, which may include completing specified tasks, actively participating in the initial activities of the network, and becoming an early contributor to the project.
The purpose of this method is to attract users, build a community, and increase the visibility of the project or token, thereby promoting project development and decentralized distribution of tokens.
Note that community plays a central role in Web3 and blockchain.
How do token airdrops work?
Token airdrops involve multiple steps and criteria to determine who can receive free tokens or digital assets. Here is a common airdrop process:
1. Announcement: Projects usually announce upcoming airdrops through their website, social media channels, or other dedicated platforms, such as social platforms such as X, Discord, etc.
2. Eligibility: Different projects have different airdrop criteria. But generally speaking, participants need to meet certain conditions, such as completing designated tasks or supporting network operations in the early stages of the project. In addition, project owners usually add conditions, such as the number of completions, duration, investment amount, etc., to further screen addresses.
3. Registration: Participants apply for airdrop qualifications by providing their wallet address or other required information through project activities or dedicated registration processes.
4. Verification: The project party verifies the eligibility of the participant based on the information provided. Generally speaking, the project party will review the interaction records between the wallet address and the project to confirm the eligibility.
5. Token distribution: Once verified, the project will send free tokens to the participant's wallet or account. In addition to the project party directly airdropping to the user's address, eligible users can also actively receive tokens through its website (this model is more common).
6. Wallet compatibility: Participants must ensure that their wallets support receiving airdropped tokens. For example, users need to adapt their wallets to the Ethereum network to receive token airdrops from the Ethereum network.
7. Participation after the airdrop: Projects may encourage participants to further participate in their network, community, and DApp ecosystem to promote further development of the community and expand its influence.
Types of Cryptocurrency Airdrops
Standard Airdrop
Standard airdrops are the most common form of cryptocurrency airdrops, where tokens are distributed for free to a specific target audience. This usually requires participants to meet the criteria set by the project, such as long-term use of its products, staking funds, testing, etc.
Eligible participants will be able to claim tokens on the official website or receive a predetermined number of tokens directly in their wallet address.
Standard airdrops are primarily used as a marketing strategy to increase awareness, attract new users, and promote community participation by distributing tokens for free to incentivize participation, expand the token holder base, and increase interest in a project or platform.
Bounty Airdrop
Bounty airdrops, also known as task-based airdrops, require participants to complete specific tasks or activities in exchange for tokens.
These tasks might include sharing project-related content on social media, writing blog posts, producing videos, finding software bugs, or translating project materials.
Token rewards will be determined based on the quality and quantity of participants' contributions. Bounty airdrops are a way to leverage the power of the community to promote brands, increase engagement, and generate content, allowing participants to showcase their skills, earn tokens through contributions, and help the project grow.
Airdrop for holders
Also known as loyalty airdrops, this type of airdrop rewards holders based on the digital assets in their wallets, which is intended to incentivize holders to hold their tokens or NFTs for the long term, thereby building a wide-reaching and cohesive community.
Taking the Solana network's NFT MadLads as an example, the holders of this NFT have continued to receive free airdrops from multiple Solana projects.
This type of airdrop is a recognition and reward from the project to loyal supporters of the blockchain, aiming to encourage users to hold assets for a long time and strengthen community participation.
Exclusive Airdrop
Airdrops targeted to specific groups such as early adopters and/or strategic partners.
This airdrop is intended to reward and recognize key stakeholders who have contributed to the project during its development phase. They are either early investors in the project or early/long-term users of the project.
Taking the Solana network as an example, many projects such as Jupiter and Kamino have rewarded users who continue to use their products during the bear market with token airdrops. Generally, we call the early adopters of the project OG users, and the airdrop benefits of OG users are usually larger.
Lottery Airdrop
An airdrop that introduces an element of randomness, where participants have a chance to win tokens by participating in a lottery-like draw.
Participating in the draw usually requires completing simple tasks, such as liking a social media post or retweeting a specific tweet. The winners are selected through random draws, so that everyone has an equal chance of getting tokens, which adds interest to the airdrop process.
Raffle airdrops are a way to increase engagement and stimulate interest in a project, increasing the chances of winning as more people from different communities participate and potentially sparking broader community participation.
However, the addition of a lottery element may also cause dissatisfaction in the community.
Take the recent Smartlayer airdrop as an example. They encouraged the community to interact with their project and provided a visual level and points standard. However, in the final qualification review stage, they added a lottery element, which made many community users who continued to interact dissatisfied.
Features of Token Airdrops (Pros and Cons)
Fast and instant: Airdrops provide a fast and instant way to distribute tokens to a wide audience. Once the conditions are met, the tokens can be directly transferred to the participant's wallet or can be claimed by users through the official website with one click.
Low-cost marketing: As a cost-effective marketing strategy, airdrops allow blockchain projects to attract attention, create buzz, and expand audience reach by giving away tokens for free without having to run expensive advertising campaigns.
Build loyalty and user base: Airdrops reward early supporters while incentivizing them to hold tokens for the long term, which helps build a loyal user base. This strategy can enhance community awareness and encourage user participation, thereby increasing the likelihood of long-term project success.
Promote decentralization: Airdrops can distribute tokens to many participants. Generally speaking, most projects’ airdropped tokens will give holders governance and voting rights. Therefore, token airdrops are also considered to be dispersing and delegating governance rights, which helps to achieve the decentralization of the project.
Limited supply of tokens may lead to disappointment: One potential disadvantage of airdrops is the limited number of tokens. Generally speaking, there is a fixed supply of tokens issued by a project, which will often be used for ecological development, investor sharing, team, liquidity provision, etc., so the part left for community airdrops is limited. Once too many people participate in the project, the project party can only choose to further screen eligible addresses, thereby excluding most of the participating users.
If the airdropped tokens are distributed equally to all participants, the number of tokens each person receives will be overly diluted, triggering a new round of community dissatisfaction.
Although the project's products and long-term community support will prove their value in the long run, short-term dissatisfaction may cause some users to leave.
Possible reduction in token value: Excessive distribution of free tokens through airdrops may lead to oversupply in the market, thereby reducing the value of tokens. When the supply of tokens exceeds the demand, it may dilute the token value of existing holders. Therefore, the project party needs to carefully balance the relationship between rewarding participants and maintaining the value of tokens.
Safety of airdrops
Airdrops themselves can be safe, but some precautions need to be taken.
Some malicious projects will plunder users' funds in the name of airdrops and run away with the money.
Therefore, before participating in the airdrop, you need to thoroughly research and investigate the project’s financing situation, airdrop details, community status, contract risks, etc.
In addition, users must be as cautious as possible during the stage when airdrops are open for collection.
Because there will be a large number of fake official websites and accounts at this time, attempting to transfer users' wallet funds or even obtain users' private keys. Therefore, users need to identify the official account and official airdrop website and confirm them again and again.
Proceeding with caution is key to ensuring your participation in the airdrop is safe.
Examples of Cryptocurrency Airdrops
1/EOS (EOS): EOS executed the largest airdrop in history, distributing free EOS tokens based on a snapshot of Ethereum holders’ balances. The airdrop was designed to attract attention and build a community around the EOS blockchain platform.
2/Uniswap (UNI): The decentralized trading protocol Uniswap also conducted a famous airdrop, distributing UNI tokens to users who used the platform before a certain date. This airdrop was designed to reward early users and encourage their further use and participation.
3/Stellar Lumens (XLM): Stellar is a blockchain-based payment network that has conducted multiple airdrops to increase awareness and adoption. They distributed free XLM tokens to users who registered on their platform, worked with specific organizations, or held other cryptocurrencies such as bitcoin or Ripple.
Frequently Asked Questions
1/What was the first cryptocurrency airdrop?
The first known cryptocurrency airdrop took place in 2014, when the cryptocurrency project Auroracoin distributed free tokens to Icelanders. The initiative was intended to provide citizens with an alternative digital currency option and encourage its adoption and use within the country.
2/How to find cryptocurrency airdrops?
You can look for cryptocurrency airdrops by following announcements on the project’s official website or social media channels.
3/Does airdrop need to be taxed?
The tax implications of an airdrop depend on the tax laws of your jurisdiction. In some cases, an airdrop may be considered a taxable event and the value of the tokens received may be subject to income or capital gains tax. It is recommended to consult a tax professional or seek guidance from local tax authorities to clearly understand the tax liability of airdrops in your country.