Airdrop

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What is a Crypto Airdrop?

A cryptocurrency airdrop is a marketing strategy, executed mainly by blockchain-based startups, that involves distributing small amounts of a new virtual currency to the digital wallets of active members of the blockchain community.

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It’s much more exciting and rewarding than its military namesake – not about delivering supplies by parachute but about distributing digital wealth to create buzz, interest, and a broader ownership base.

An airdrop can be free to receive or in return for small promotional activities, such as social media posts.

Techopedia Explains the Crypto Airdrop Meaning

Airdrop

The term crypto airdrop refers to when cryptocurrency coins, tokens, or non-fungible tokens (NFTs) are distributed to qualified crypto wallet addresses, typically for promotional purposes.

Some of the most popular crypto airdrops require users to fulfill specific qualifications to become eligible, such as the Arbitrum airdrop, which required user activity on the Arbitrum blockchain network within a specified date range.

Other crypto airdrops might be given away to users of similar protocols when launching a new decentralized application (dApps). For example, part of the Aerodrome token airdrop was airdropped to existing  Velodrome users, helping to make Aerodrome the leading decentralized crypto exchange on the Base blockchain.

Airdrops offer an opportunity for projects to generate user interest and industry buzz while also increasing activity on a chain or protocol.

History of Airdrops

Since the inception of the first airdrop in 2014 with the Icelandic Auroracoin project, they have continuously evolved, shaping new trends and technologies.

Airdrops have become an integral part of not only the launch of new cryptocurrencies but also major blockchain updates and forks, this was evident in the case of Bitcoin Cash’s fork, where holders of Bitcoin (BTC) received an equivalent amount of Bitcoin Cash (BCH).

As the industry matured, this novel distribution method has been increasingly used to incentivize participation in decentralized finance (DeFi) projects and governance of decentralized autonomous organizations (DAOs).

Community-led initiatives have begun to use this approach to distribute voting rights and governance tokens, ensuring a more decentralized and equitable distribution of control. In addition to serving marketing purposes, crypto airdrops have become a powerful tool for fostering community engagement and loyalty.

Innovative distribution models, such as tiered distribution and staking rewards, have emerged, allowing projects to tailor airdrop campaigns to their unique goals and community needs.

The history of airdrops illustrates the adaptability and innovation that characterizes the cryptocurrency space. Airdrops have moved from being a simple promotional tool to an intrinsic part of many blockchain ecosystems.

Key Moments in Airdrop History

March 2014 – Auroracoin

Iceland’s Auroracoin was an early and ambitious experiment for a P2P currency that could replace the Euro in the aftermath of Iceland’s 2008 financial crisis.

September 2020 – Uniswap

Uniswap’s airdrop reached over 250k addresses. To date, Uniswap’s airdrop, valued at $6.4 billion, remains the largest crypto airdrop.

September 2021 – dYdX

The second-largest decentralized derivatives trading platform rewarded past users with an airdrop of its native token (DYDX).

November 2021 – Ethereum Name Service

Ethereum Name Service (ENS) converted to a DAO with a massive airdrop.

March 2022 – ApeCoin

Bored Ape and Mutant Ape NFT holders were eligible to claim a share of the APE airdrop, granting governance rights as well as special access to events and merchandise.

December 2022 – Bonk

The dog-themed BONK token was airdropped to the Solana community on Christmas day, minting Bonk millionaires within a year of launch.

March 2023 – Arbitrum

The Abitrum blockchain’s governance token (ARB) airdrop helped the chain grow to 550 active protocols.

How Does an Airdrop Work?

A cryptocurrency airdrop works in one of two primary ways: automatic distributions and claimed airdrops.

In an automatic distribution, you’ll receive tokens or coins to your wallet address automatically with no additional steps required. The recent $DOG airdrop worked this way. Eligible crypto wallet addresses received DOG tokens on the Base blockchain. DOG tokens are a fractionalized NFT representing partial ownership of the Doge NFT, which was purchased at auction for nearly 1,700 ETH. Token recipients received DOG tokens automatically.

Claimed distributions require additional steps. In some cases, you can claim the airdrop by connecting your wallet and authorizing the transaction. The recent Seamless Protocol airdrop worked this way. But be careful with airdrops that require you to connect your wallet. See the section on airdrop scams. Some airdrops require you to complete prerequisites to become eligible.

How an Airdrop Works

Airdrops can also be NFTs that represent a monetary stake on a decentralized finance (DeFi) platform. For example, the Aerodrome protocol airdropped veAERO NFTs to qualified wallet addresses. These time-locked NFTs could then be staked to earn a percentage of trading fees by voting for liquidity pools.

Types of Airdrops

Airdrops can take a variety of forms, with each type of airdrop typically aimed at specific promotional goals, such as user growth for a protocol or blockchain.

The most common types include:

Standard AirdropBounty AirdropHolder AirdropExclusive AirdropRaffle Airdrop

Users express interest and provide a valid crypto wallet address. Standard airdrops don’t require additional actions but usually need to be claimed which requires gas fees.

Users must perform certain promotional tasks to earn points. For example, a bounty requirement might be to share a post on social media or subscribe to a newsletter. More elaborate bounty airdrops might require staking or other smart-contract interactions.

Users receive an automatic distribution based on current holdings. Holder airdrops may qualify recipients based on their holdings in the airdrop project or similar projects that signify an interest in that type of protocol.

Recipients qualify based on specific selection criteria. For example, the Apecoin airdrop qualified recipients based on ownership of Bored Ape or Mutant Ape NFTs.

Recipients are randomly selected from a pool of registered wallet addresses. Raffles provide a fair way to allocate the airdrop while also growing engagement with the project by registering wallet addresses.

Examples of Airdrops

Some of the biggest crypto airdrops also offer the best examples of how airdrops work and how airdrops aid decentralization efforts. For example, we can look at the Uniswap airdrop, still the largest to date, and the Abitrum airdrop, which helped Abitrum launch its DAO. In both cases, the airdrop provided governance tokens, allowing holders to vote on proposals for each project.

Uniswap Airdrop

The Uniswap airdrop provided a minimum of 400 UNI tokens for wallet addresses that had used the protocol prior to September 2020.

In total, more than 250,000 wallet addresses were eligible based on interactions with the Uniswap decentralized exchange. However, distribution for the airdrop skewed toward those with larger liquidity pool positions, with power users on the platform earning larger allocations.

What began as a governance token airdrop may soon evolve to reward UNI holders with protocol fees for staking and delegating their voting power.

Arbitrum Airdrop

2023’s much-anticipated Abritrum airdrop followed a similar goal to Uniswap: decentralization of the blockchain by distributing governance tokens.

Abitrum’s airdrop used a points system in which specific activities on the Arbitrum blockchain made wallet addresses eligible for one of ten distribution tiers (up to 10,250 ARB tokens). Token holders could then vote on proposals for the Abitrum DAO, which can allocate funding via ARB tokens to protocols on the Arbitrum blockchain.

GOVERNANCE TOKEN AIRDROPS

Many of these protocols, such as GMX and Radiant Capital, used their ARB allocations to fund additional airdrops incentivizing new users.

Airdrop Scams

The hype surrounding airdrops attracts scammers eager to cash in on the buzz. Whenever a big airdrop goes live, social media platforms and discussion boards like Discord and Telegram come alive with fake links to claim your share of the airdrop.

The process of claiming an airdrop often includes connecting a crypto wallet to verify eligibility and claim the tokens if eligible. For this reason, a link asking you to connect your wallet might not seem suspicious. However, the smart contract on the other end might be doing something quite different, such as draining your crypto wallet.

In bolder scams, scammers posing as representatives of the project may offer to help you claim the airdrop, perhaps by asking you to verify your wallet’s recovery phrase or private key. Providing either of these allows someone else access to your crypto assets, which they can then transfer to another wallet.

To avoid airdrop scams, don’t click on claim links you find on social media, receive by email, or receive via direct messages. Instead, navigate directly to the official project page and search for airdrop information there. Reputable projects make airdrop information readily available.

Other types of scams use the airdrop of a fake token to lure curious crypto investors. When viewing the transaction in a block explorer, they find a web address to complete the transaction. The safest play is to ignore the fake airdrop. It’s essential to use discernment in the crypto world.

Pros and Cons of Airdrops

The emergence of airdrops has led to a significant debate within the crypto community about the benefits of these coin launches and the often lackluster performance of associated tokens.

Pros

  • Reward early adopters
  • Boost marketing and awareness
  • Facilitate distributed ownership

Cons

  • Pose security risks
  • Enable possible pump-and-dump schemes
  • Present potential worthlessness
  • Raise tax considerations

The Bottom Line

The crypto airdrop definition refers to the concept of distributing crypto tokens or coins to qualified wallet addresses. Airdrops have become integral to the crypto economy and offer innovative ways for projects to build community, increase adoption, and reward loyalty. Many projects also use airdrops as a way to decentralize governance, distributing voting power amongst the community itself.

However, like many aspects of the crypto world, airdrops come with potential pitfalls. Approach airdrops with caution, understanding the nature of the token, the integrity of the project, and the true value proposition.

As always, use discernment with crypto-related activity. Some crypto giveaways may be legitimate, while others merit closer scrutiny.

FAQs

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Eric Huffman
Editor
Eric Huffman
Editor

Eric Huffman has a diverse background ranging from business management to insurance and personal finance. In recent years, Eric's interest in finance topics and in making personal finance accessible led to a focus on cryptocurrency topics. Eric specializes in crypto, blockchain, and finance guides that make these important topics easier to understand. Publications include Milk Road, Benzinga, CryptoNews.com, Motor Trend, CoverWallet, and others. Always learning, Eric holds several certifications related to crypto and finance, including certificates from the Blockchain Council, Duke University, and SUNY. When he's not writing, you might find Eric teaching karate or exploring the woods.