As the crypto industry expands, new and inventive projects are constantly being introduced, creating a competitive environment where some initiatives struggle to get noticed in the bustling crypto community.
Among this intense competition, cryptocurrency airdrops have emerged as a popular marketing strategy. They're employed by projects wanting to make a splash in the crypto market and generate awareness for their upcoming coin, product, or service.
In this article, we'll explore the concept of airdrops, delve into their mechanics, analyze the different types of airdrops used by blockchain projects, examine the reasons driving their use, and critically evaluate the pros and cons of these crypto airdrop campaigns.
What is a crypto airdrop?
A crypto airdrop is a marketing strategy cryptocurrency projects use to raise awareness for their new digital asset or project. Crypto airdrops involve sending a small portion of coins or tokens to wallet addresses that meet certain eligibility requirements. An airdrop can also be used by crypto projects to ensure that there is a fair distribution of its coins and tokens among its community members.
What are the types of crypto airdrops?
Crypto projects generally have various goals and often employ different strategies to achieve them. There are four main types of airdrops crypto projects deploy to venture into the crypto ecosystem. They are:
Standard airdrop
A standard cryptocurrency airdrop is an inclusive event open to all interested participants. No specific tasks are typically required other than registering for an account with the project. Upon meeting the criteria, the project distributes a small amount of the new crypto to eligible wallet addresses. Due to limited spaces, participants must act quickly to secure their spot in a standard airdrop.
Bounty airdrop
Bounty airdrops serve as marketing strategies, offering crypto assets in exchange for participating in promotional activities. These activities can vary from simple tasks like subscribing to a newsletter to sharing project-related content on social media platforms such as Twitter, Facebook, and Instagram.
Holder airdrop
Holder airdrops reward participants solely for holding a particular project's token or coin. Such airdrops are commonly used when a project undergoes a hard fork, creates two separate platforms, or launches on a different blockchain. The amount of crypto airdropped to participants is predetermined based on a snapshot of their wallet addresses.
Exclusive airdrop
A project selects a specific group of individuals to receive tokens as a reward in an exclusive airdrop. This type of airdrop is more centralized and targets individuals with a close relationship with the project. Criteria for selection may include factors like their level of engagement, time spent supporting the project, or their involvement in non-token activities. For instance, the Uniswap airdrop in September 2020 granted UNI tokens to over 250,000 early exchange users as an exclusive reward.
How does a crypto airdrop work?
When a crypto or blockchain project decides to launch via airdrop, launching a public campaign is the first call to action. The team uses forums and social media platforms such as Discord, Reddit and Twitter to promote crypto projects.
The team decides on the type of crypto airdrop to use and during the public campaign, compiles a list of potential token recipients. Crypto projects can also use the campaign to gather additional information about the potential users for its products or services.
The project then creates a smart contract or a self-executing program to automate the airdrop process. The team then sets the time for the smart contract to airdrop the tokens or coins from the company’s treasury wallet to the selected participants. To gain the trust of the community it has built throughout the campaign, the team publishes the transaction block results of the airdrop.
In some countries like the United States, airdrops are considered income, which means that whenever you receive an amount of “free tokens,” you’ll actually need to pay tax on them – whether you wanted the airdrop in the first place or not. Recipients of airdrops also pay transaction fees for the crypto in their wallets.
How to participate in crypto airdrops?
From the types of crypto airdrops discussed earlier, you can seek to participate in standard and bounty airdrops, while your current activity within a certain project may allow you to qualify for holder and exclusive airdrops.
If you want to participate in airdrops, then you would need to find the project before it launches. There are websites that track airdrops such as DappRadar and Airdropalert. After finding these airdrops, always do your own research to ensure the authenticity of the project offering the airdrop.
After meeting the requirements to become eligible to receive the airdrop, all you need to do is input your crypto wallet address. In most cases, the project will notify you after the airdrop has been sent to your crypto wallet.
What's the point of a crypto airdrop?
Now that we understand how an airdrop works, why do crypto and blockchain projects use this tactic?
Low-cost marketing
The crypto industry is a competitive space where projects can quickly go unnoticed. For new projects, an airdrop can be an effective way of creating buzz at an affordable price. Blockchain projects often use bounty airdrops to boost awareness of their tokens, products, or services on social media, reaching a larger audience than usual.
Establish a community
As they participate in the airdrop, recipients are usually inclined to research more about the token and the underlying project. Hence, it's common for crypto projects to have built a strong community of loyal members even before their token or product goes live.
Fast and instant results
Since the tokens are airdropped directly to participants, they get first-hand experience with how it works. Here, the project itself benefits by potentially reaching its goal of having the products used by the public.
Risks of crypto airdrops and how to avoid them
While the benefits of airdrop are apparent, there are some risks attached. The risks of airdrop aren’t inherent flaws in the concept of airdrops. Instead, they usually come from malicious actors who take and exploit the airdrop.
Here are some of the risks associated with crypto airdrops and how to avoid them:
Fake airdrops and scams
There are fake crypto airdrops that tend to look like the real thing. The team behind these fake airdrops promotes them like real projects. For their airdrops, they may request users to input their personal information to gain access to their wallets to steal their private keys and digital assets.
These scams can look very realistic, making them difficult to spot. However, doing your own research about the project before participating in airdrops will help in reducing your chances of falling victim. We advise using a new secure wallet for airdrops and if you see any new crypto or NFT in your real wallet that you don’t know their origin, it’s best not to interact with them.
Rug pull
A rug pull happens when a cryptocurrency or blockchain developer creates hype around a project to attract investor money, only to abandon the project and disappear with investors' assets suddenly. From the onset, they never planned on running the project long-term.
One way to avoid rug pulls is to do your due diligence when offering an airdrop. Because the developers behind rug pulls don’t plan to keep the project running, the on-chain security measures, token fee policies, and project goals are either not clear, transparent, or faulty.
Loyalty is not guaranteed
There’s a hard reality that crypto projects face after an airdrop – loyalty isn’t guaranteed. Immediately after an airdrop, recipients may immediately sell their rewards, forcing the price of the coin or token to lose value. This may end up hurting the project and its brand as a business.
Crypto airdrops, a risk worth taking to raise awareness?
Crypto projects utilize crypto airdrops as a marketing strategy to spread the word about their upcoming platforms or digital assets. It gives crypto and blockchain projects an opportunity to raise awareness and build a community ahead of the launch of their digital asset or product.
Airdrops serve as a suitable launchpad for new crypto projects in the highly competitive crypto market. However, like the general too-good-to-be-true principle, there are some common risks of participating in a crypto airdrop campaign.
FAQs
How do you get crypto airdrops?
Crypto projects have varying individual requirements to become eligible for their airdrops, although most of them are easy to find. To get the cryptocurrency airdrop, you need to find them and meet the requirements to qualify. The main requirement to receive the airdrop is often a supported crypto wallet.
Is crypto airdrop safe?
Crypto airdrops are safe, provided that the participant has done their due diligence to determine the legitimacy of the project they wish to partake in. Participants also need to take safety measures like never sharing their private key or connecting their live wallet address to avoid being scammed.
What is the benefit of airdrop in crypto?
The main benefit of a crypto airdrop is to increase awareness and adoption of a particular crypto or blockchain project before it launches. Projects that would have otherwise gone unnoticed use airdrops to create buzz and interest before it launches.
Are crypto airdrops free?
Crypto airdrops are free. Blockchain projects distribute their coins or assets for free to raise awareness for their upcoming projects. While participants do not pay for crypto airdrops, they may require certain tasks to be completed.
Disclaimer:
THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO PROVIDE ANY INVESTMENT, TAX, OR LEGAL ADVICE, NOR SHOULD IT BE CONSIDERED AN OFFER TO PURCHASE OR SELL OR HOLD DIGITAL ASSETS. DIGITAL ASSET HOLDINGS, INCLUDING STABLECOINS, INVOLVE A HIGH DEGREE OF RISK, CAN FLUCTUATE GREATLY, AND CAN EVEN BECOME WORTHLESS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING OR HOLDING DIGITAL ASSETS IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. PLEASE CONSULT YOUR LEGAL/TAX/INVESTMENT PROFESSIONAL FOR QUESTIONS ABOUT YOUR SPECIFIC CIRCUMSTANCES.
