Most crypto projects have adopted airdrops as part of their marketing strategies in recent years. This article explains in detail how airdrops work and why they happen. Keep reading to learn more.
Defining Crypto Airdrop
Airdrops are events where crypto projects distribute free coins or tokens to their dedicated users. Many mistake initial coin offerings (ICOs) for airdrops. However, the two differ in that ICOs are used to raise funds from users, while airdrops are free tokens rewarded to users.
Notable Airdrops Events
Here are the most prominent airdrops in the crypto history:
Auroracoin
Auroracoin was the first crypto project to conduct an airdrop. Its token, AUR, was distributed for free to Icelandic residents in 2014. Every Icelandic citizen with a government-issued ID was eligible to receive at least 30 AUR.
According to Auroracoin creators, the purpose of the airdrop was to advocate for crypto adoption in Iceland.
Uniswap
Uniswap, a well-known decentralized exchange, launched its UNI governance token in 2020 via an airdrop. Each active user received 400 tokens, which gave them the power to vote on proposals.
How Airdrops Work
The process of distributing free tokens to users involves several steps. For instance, as a developer of a crypto project, you need to define airdrop eligibility criteria to pick those who qualify to receive free tokens.
The crypto points system is the most common criterion adopted by projects that plan to conduct an airdrop. It involves assigning points to users based on specific achievements. For example, if a user records a specific transaction volume, they are rewarded points, which improve their chances of qualifying for an airdrop.
After the window for collecting points elapses, a crypto project carries out a snapshot. For beginners, a snapshot is the process of creating a record of users eligible for an airdrop. It is done a few days before the airdrop happens. After a snapshot, an airdrop checker is released to allow eligible users to view their token allotments.
Why Crypto Airdrops Occur
As mentioned, airdrops are a marketing strategy. They’re used to create awareness and generate excitement around crypto projects. Airdrops allow decentralized finance protocols to give voting rights to users, who then participate in key decision-making processes. Also, considering crypto ICOs have been banned in several countries, airdrops enable developers to distribute coins without regulatory hurdles.
Types of Airdrops
Several types of airdrops exist. They include:
Standard Airdrops
These airdrops require users to sign up in advance with the protocols set to distribute free tokens. Users who register within the specified period stand a chance of becoming eligible for an airdrop.
Surprise Airdrops
Developers who conduct surprise airdrops do not inform users in advance. Instead, they secretly distribute tokens to active addresses and later alert users to check their wallets.
Exchange Airdrops
Such airdrops are conducted by crypto exchanges. In most cases, eligibility is determined by users’ transaction volumes.
Smart Airdrops
Developers who opt for smart airdrops first analyze crypto users who would be interested in using their platforms before distributing free coins. For instance, BitTorrent creator distributed over 80 billion BTT tokens exclusively to TRON holders a few months ago.
Downsides of Crypto Airdrops
While airdrops carry numerous benefits, they come with some downsides that you should know about.
Low User Retention
Unfortunately, while airdrops sound like an ideal promotional strategy, there is a likelihood that users may be using your platform only to qualify for an airdrop and disappear after receiving free tokens.
Vanity Metrics
Before an airdrop, the user activity on a crypto protocol is usually high. Some developers use this on-chain data to seek funding. However, user activity typically drops significantly after an airdrop, causing investors to lose money.
Sybil Farming
Sybil farming happens when one user creates multiple accounts to farm an airdrop. This creates the impression that a crypto project has several users, but in reality, it’s just a few individuals running numerous accounts.
Dumping Issue
Considering most people aim to book profits immediately after airdrops, the value of the airdropped tokens plummets massively within a short period.
