An airdrop is when a crypto project distributes free crypto tokens to a wide number of users in an effort to promote a new token and encourage adoption within the crypto community. They are a common marketing strategy used by start-ups to promote the launch of new coins and encourage early engagement.
This guide will explain how crypto airdrops work, look at the different types of airdrops that exist, and discuss how to avoid getting scammed by fraudulent airdrops.
What is a crypto airdrop?
Airdrops are the crypto version of a free product sample in a shopping centre. A crypto airdrop is when a project gifts a small amount of coins or tokens to the community. The idea is to drive engagement and help boost the activity of the project within the community. There are a few different types of airdrops, but they all share a common objective: to raise awareness of a new project and increase ownership of the start-up token.
How do airdrops work?
An airdrop is when a crypto project transfers free coins or tokens into the wallets of multiple users. Sometimes crypto airdrops are distributed automatically, and the tokens are directly deposited and simply appear in a user’s wallet. Other times users must manually claim the tokens by connecting their wallet to the project’s website in order to receive the drop.
Anyone with a non-custodial crypto wallet (such as MetaMask) can receive or claim an airdrop. Often airdropped tokens are a reward given to users in exchange for helping to promote the project. To be eligible for certain airdrops users must meet certain criteria.
Important To Remember
If you are eligible for an airdrop by holding or staking certain digital assets, it is important that you store or stake these coins in a non-custodial wallet (a wallet where you own your private keys). Some exchanges may distribute airdrop tokens based on your wallet balance, but others may not.
How can you be eligible for an airdrop?
There are three common ways users can be eligible for free cryptocurrency airdrops:
- They may be asked to complete some simple promotional steps before they can receive their free tokens. This commonly involves things like engagement on social media, such as “liking” the project’s Twitter account and “retweeting” the launch of the token, including the project’s hashtag.
- In some cases users must hold a certain amount of tokens in their cryptocurrency wallet, where a snapshot is taken between a specific timeframe before they can qualify for the airdrop.
- Sometimes users are required to stake a specified amount of tokens on the project’s platform, for a set amount of time, to get an airdrop.
Did You Know?
A snapshot is when a crypto project records the state of a blockchain on a particular block height to verify the balance of tokens held in a user’s wallet at a specific date and time.
What is the purpose of airdrops?
The main purpose behind airdrops is brand awareness. Much like designers who send Paris Hilton free sunglasses in the hope she will be photographed wearing them, the aim of airdrops is to increase brand awareness, and ultimately, the number of users on the network.
Increased network adoption is a positive metric for a new project. Airdrops encourage usage and help grow the network by creating an initial user base.
In a similar way a nightclub might run a promotion to give away free passes to those who pre-registered interest. The line of guests waiting outside to enter helps draw attention to the event and attracts other punters walking by to buy tickets at the door. In general, airdrops help to generate more marketing buzz for a crypto project before the token is listed on exchanges.
Criticism of Airdrops
It should be mentioned that airdropped coins can give a false impression of growth in an ecosystem. For example, if there are a high number of wallet addresses holding a certain token but it is not being actively used, this is a good indication it could be a red flag. Or it could be that a project simply failed to impress the community. Just because Paris Hilton gets free sunglasses, doesn’t mean she is actually going to wear them.
Different types of airdrops
Holder airdrop
A holder airdrop is when free tokens are distributed to users that hold a certain amount of a particular token in their wallet. To qualify for a holder airdrop, a project will take a snapshot of a user’s wallet at a specific time, to deem whether they meet the requirements and are eligible for the drop. Recipients can then claim free tokens allocated to them, which often depends on the amount of their holdings.
Cosmos is a great example of an ecosystem that utilises holder airdrops. To be eligible for a Cosmos holder airdrop, users must hold or stake a required number of certain tokens, determined by each project. Users who held ATOM were entitled to over 10 airdrops during 2020/21 alone. This is a great opportunity for crypto enthusiasts to gain more tokens.
Bounty airdrop
A bounty airdrop requires users to participate in some sort of social engagement before they qualify for the token airdrop. Users must complete certain tasks such as: join the project’s social accounts (Telegram, Discord, and Twitter); create a post that includes the project’s hashtag and tag friends; or just “follow”, “like” and “retweet” a project’s post about the token launch. To claim a bounty airdrop, users are usually asked to fill out a form and provide their wallet address to receive their free tokens.
Exclusive airdrop
Exclusive airdrops are when a project sends crypto tokens to specific, designated wallets. Usually, they are given to users who have been early participants of a project to reward them for their feedback or help developing the product.
Did You Know?
Uniswap, a decentralized exchange, airdropped 400 UNI into every wallet that had interacted with the protocol before a certain date, in the 2020 UNI Airdrop. These free tokens awarded to early investors came to be worth thousands of dollars, as the price of UNI increased from around $2 to reach an all-time high of almost $45.
Airdrop scams and how to avoid them
Unfortunately, scams are a big part of crypto, and airdrop scams have become quite common. It is extremely important to stay vigilant and always do your own research (DYOR) before signing up for a cryptocurrency airdrop. It is especially important to be wary whenever you are asked to connect your wallet to a website.
Scammers will often trick people into connecting to fraudulent phishing websites that look almost identical to pages offering legitimate crypto airdrops. Sometimes fake tokens are airdropped so that scammers can access and drain all the crypto in your wallet once you try to claim or exchange the airdrop tokens.
Some airdrop scams will ask you to send crypto to another wallet address in order to unlock the free tokens. Legitimate airdrops will never ask you to send funds to another address, nor will they ever ask you to enter your seed phrase. Many crypto scams target users through emails and direct messages, if an airdrop opportunity comes to you this way, it is a major red flag.
Tip
To avoid scam airdrops, always double-check a project’s official website and social media platforms to verify if an airdrop is legitimate, and only click on links from these trusted sources. As an added protective measure, if you are looking at exploring airdrops, it is a good idea to use a separate wallet dedicated only to receiving crypto airdrops. This will help protect the bulk of your crypto funds and keep them safe from scammers.
Summary
Airdrops are free crypto coins or tokens that are gifted to users in exchange for participating in or helping promote certain crypto projects. This article has covered what airdrops are and explained the different kinds of crypto airdrops and how they work. It has also discussed why they serve as an effective marketing tool for promoting new tokens and how they help grow a project’s initial user base.
Disclaimer: The information on Swyftx Learn is for general educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any assets. It has been prepared without regard to any particular investment objectives or financial situation and does not purport to cover any legal or regulatory requirements. Customers are encouraged to do their own independent research and seek professional advice. Swyftx makes no representation and assumes no liability as to the accuracy or completeness of the content. Any references to past performance are not, and should not be taken as a reliable indicator of future results. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose. Consider our Terms of Use and Risk Disclosure Statement for more details.
