Understanding the Mechanics and Purpose Behind Free Token Distribution.

The term “airdrop” is frequently used in crypto circles, but its meaning can be ambiguous. This article aims to provide clarity by explaining what a crypto airdrop is, delving into the primary reasons projects employ this strategy, and thoroughly exploring the seven distinct types of airdrops.

By the end, you’ll possess a comprehensive understanding of crypto airdrops, empowering you to capitalize on these opportunities as they arise.

What is an Airdrop?

An airdrop refers to when a cryptocurrency project distributes free coins or tokens to cryptocurrency wallets, usually as a way to promote their new coin. Rather than having an initial coin offering (ICO) or initial exchange offering (IEO), they choose to give away a portion of their coins for free to build an initial user base.

The 4 Motivations Behind Crypto Airdrops:

• Marketing — Giving away free coins is a clever way for a new project to get their token into as many hands as possible and generate buzz in the crypto community. It’s a cost-effective marketing strategy.
• Distribution — Airdrops allow a project to more widely distribute coins from the start rather than rely solely on exchanges for initial liquidity. This can potentially give the coin a better chance of long-term success.
• Community building — By airdropping coins, projects are essentially rewarding users who support their vision with a chance to earn some value if the project takes off. This helps cultivate brand loyalty and an initial community.
• Network effects — The more users that hold an airdropped coin from the beginning, the bigger the network effects. This makes the coin potentially more attractive to future investors and gives it a head start in terms of adoption.

Auroracoin: The First Cryptocurrency Airdrop

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The first major cryptocurrency airdrop took place in 2014, distributing Auroracoin to all citizens of Iceland. In an unprecedented move, every resident of the country was able to claim a sum of the newly launched digital currency without purchase. This pioneering airdrop exposed the entire Icelandic population to cryptocurrency by giving them free Auroracoin.

While well-intentioned, the airdrop’s effects were not exactly as hoped. After initially receiving their tokens, the price of Auroracoin dropped significantly. However, the project set an important precedent as the first to employ an airdrop for token distribution on such a large scale. By introducing cryptocurrency in this novel way, Iceland served as a testbed that proved the viability of airdrops as a strategy.

The first-ever crypto airdrop is considered to be Auroracoin cryptocurrency created by Iceland. It was designed to be the national digital currency. All those who signed up received the crypto airdrop of 31.80 Auroracoins (AUR) for free. However, the price of AUR plummeted after the airdrop, and the project was abandoned.

Since that first nationwide airdrop, distributing tokens freely has become a popular tactic for new blockchain protocols. Projects utilize airdrops to generate buzz and attract users by giving them an instant stake. While the price action of Auroracoin post-airdrop was disappointing, it demonstrated the power of this distribution method to spread awareness. As a result, airdrops have now emerged as a common approach within the blockchain industry for gaining exposure and onboarding early supporters. Though the effects in Iceland were mixed, Auroracoin’s pioneering effort established the airdrop as a viable distribution model that continues to be widely adopted.

However, there is a lot of confusion about what exactly constitutes an airdrop and the different types that exist. Let’s now break down the seven primary categories of airdrops and how each one works.

7 Primary Categories of Airdrops

1) Hard Fork

Hardfork airdrops involve creating a new cryptocurrency through a blockchain fork, where existing holders of a specific cryptocurrency receive a proportionate amount of the new tokens.

While rare, these events hold significant importance. One notable example occurred when Ethereum underwent a hard fork following the notorious DAO hack in July 2016. After the hard fork, ETH holders found themselves with an equal amount of two distinct tokens: ETH (Ether), the native token of the forked Ethereum protocol, and ETC (Ethereum Classic), the original Ethereum token.

Ethereum Hardfork Timeline

At first glance, a hard fork may appear advantageous as it rewards token holders with an additional asset they can hold, trade, or sell. However, it’s important to note that a hard fork can often lead to a decline in the value of the native units on the two separate blockchains. This decline arises from concerns about an ongoing division within the community.

2) Holder & Staking Airdrops

Holder & Staking airdrops exclusively reward participants for holding or staking a specific project’s token or coin.

These types of airdrops are commonly utilized within the Cosmos Ecosystem. One memorable instance occurred when the Juno blockchain airdropped 1 Juno Token for each ATOM staked on the snapshot date of February 18th, 2021.

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Remarkably, Juno reached an All-Time High of $45.74 on March 3rd, 2022, making this airdrop highly profitable if sold or traded during that period.

The key takeaway from holder & staking airdrops is that the amount of cryptocurrency airdropped to participants is predetermined based on a snapshot date of your wallet addresses. If you are holding or staking the right tokens on the snapshot date, then you will likely receive an airdrop.

3) Standard Airdrops

A standard airdrop is an inclusive event that’s open to all interested participants. Typically, no specific tasks are required apart from registering for an account with the project. Registering an account can be as simple as downloading a designated wallet, which serves as the recipient of the airdropped tokens. Alternatively, it may involve signing up for a newsletter, following the project’s social media accounts, or minting a certain NFT.

Once the criteria are met, the project distributes a small amount of the new cryptocurrency to eligible wallet addresses. However, since spaces are limited, participants must act swiftly to secure their spot in a standard airdrop.​

4) Exclusive Airdrops

Exclusive airdrops are a selective form of distribution that specifically target individuals based on their relationship and contributions to a particular project. These contributions could be measured by factors such as long-term engagement, developer support offered, or involvement in non-token-related activities. The aim is to reward those closely involved with the project, whether they are early backers who actively participate in the community or individuals chosen based on criteria like time or monetary investments outside of token holdings.

A well-known example of an exclusive airdrop is when Uniswap distributed its UNI governance tokens in 2020 to any user address that had previously interacted with their protocol. This initiative was highly successful, prompting other DeFi platforms like dYdX and 1inch to adopt a similar model and airdrop governance tokens to their early supporting communities.

In addition to targeting early adopters and protocol users, exclusive airdrops can also be extended to groups that support the project in different ways. Within the Cosmos ecosystem, for instance, many projects airdrop tokens to individuals who delegate the ATOM tokens of the Cosmos Hub blockchain, recognizing their contribution to network security.

Overall, exclusive airdrops serve as a more centralized distribution approach that focuses on rewarding individuals and communities who are most integral to a given project.

5) Raffle

A raffle airdrop is a method that introduces an element of randomness into the token distribution process. It is commonly utilized by projects when the demand for an airdrop exceeds the allocated airdropped token supply.

In the raffle model, participants can earn tickets that make them eligible for entry into a drawing. Various activities, such as accruing points, holding tokens, or demonstrating interest in the project, can earn you these tickets.

Once a participant acquires a ticket, they are included in a lottery where a limited number of wallets will be randomly chosen to receive the airdrop. This ensures a fair distribution when there is a high demand for tokens but a limited supply. Raffle airdrops can also be combined with other distribution methods to add an additional layer of random selection.

By implementing a raffle system, projects create an inclusive process that allows all enthusiastic participants to receive tokens, rather than solely selecting a small group based on specific criteria.

6) Bounties/On-Chain Activities

Bounty airdrops are a method used by projects to distribute crypto tokens to users in exchange for completing specific promotional tasks.

These tasks can include activities like sharing project updates on social media, engaging in on-chain trades, providing liquidity, joining official Discord or Telegram groups, and referring friends through affiliate links.

Users earn points for each task they complete, and the number of points determines the size of the bounty airdrop they will receive. To qualify for an airdrop, users typically need to reach a specific threshold of points. For example, following the project on Twitter and joining Discord may earn a user 50 points each, with a total of 250 points required to become eligible for an airdrop.

One well-documented example of a bounty airdrop was conducted by the NFT platform OneRare, which offered a prize pool of $75,000. Participants had to complete a nine-step process, including following multiple social media accounts and watchlisting the project on CoinMarketCap, to qualify. [Source]

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Promotional activities like sharing content, signing up for newsletters, and actively participating in the community are common requirements for bounty airdrops, as they help raise awareness for early-stage projects. A notable instance is Ontology’s 2018 effort, where participants received 1,000 ONT tokens simply by signing up for their mailing list before the official launch.

It’s important to note that while bounty airdrops may seem to provide “free” tokens, completing the designated promotional tasks is necessary to qualify for the distributed tokens. This balanced system benefits both participants and projects by incentivizing marketing activities during the initial growth stages.

7) Retroactive Airdrops

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Retroactive airdrops are a way for projects to express gratitude to their early supporters. Instead of simply distributing tokens to current wallets, they take snapshots of the blockchain at different time points to identify past users of the dApp. This is a means of rewarding those who believed in and contributed to the project during its early stages.

A great example of a project that executed retroactive airdrops effectively is Uniswap. Rather than solely considering current users of the Uniswap protocol, they examined past transactions to identify the original users who were actively testing the platform from the beginning. This practice is often employed when releasing governance tokens, as it ensures that early supporters have a voice in shaping the project’s future. Ultimately, it’s a mutually beneficial arrangement — users receive free tokens, while the protocol acknowledges and appreciates the loyal users who played a role in its initial growth.

Retroactive airdrops are designed to reward wallet addresses that have engaged with a specific dApp in the past. These projects typically take snapshots of the blockchain at various points in time to determine eligibility for the rewards. The specifics of these airdrops are typically disclosed after the fact, allowing users to anticipate potential rewards from the dApps they interacted with.

Retroactive airdrops commonly occur when an existing protocol introduces its native token. Due to their association with established projects, retroactive airdrops tend to hold greater value when compared to the airdrops mentioned above.

The anticipation of a retroactive airdrop often leads to a significant increase in the price of both existing and new tokens associated with the project. Additionally, like standard airdrops, participants receive valuable tokens at no cost.

Conclusion

Now that you have a better understanding of what airdrops are, why crypto projects employ them, and the seven different types of airdrops, you are better prepared to take advantage of future airdrop opportunities.

Airdrops serve as an effective marketing tool for new crypto projects, allowing them to build an initial user base, foster community engagement, and distribute tokens widely from the onset. By rewarding early adopters and supporters with free tokens, airdrops generate buzz and cultivate brand loyalty.

Whether it’s through holder & staking airdrops, exclusive distributions, raffles, bounties, retroactive rewards, or standard giveaways, there are various ways to earn free crypto.

As the crypto space evolves, staying informed about upcoming airdrops and meeting the necessary criteria can present lucrative opportunities.

With your newfound knowledge, you can strategically position yourself to benefit from airdrops by holding the right tokens, engaging with promising projects, and participating in community activities. Keep an eye out for airdrop announcements, and don’t hesitate to get involved — you never know when your next airdrop windfall might arrive.

Disclaimer：

1. This article is reprinted from [Coinmonks]. All copyrights belong to the original author [Mike Abramo]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
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