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Explained: Crypto Airdrops

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DappRadar

Learn more about crypto airdrops in 2020 for developers and investors.

Crypto airdrops are basically a means by which a company distributes its tokens to the wallets of certain users, usually, completely free of charge. 

For anyone who has ever watched an old-time war movie, you will remember seeing huge Hercules airplanes dropping packages onto the land below. These boxes were full of supplies and were dropped with no costs attached to help those caught up in conflict. 

In the crypto-verse the same basic offer is true but crypto airdrops are instead used as a form of marketing and distributed to build communities around projects in the early stages of development. Alternatively, and more recently governance tokens have been airdropped to users of a platform allowing them to take a bigger role in the governance of a project as well as be rewarded for their loyalty or early adoption. 

It is important to differentiate between the Apple Mac and iOS file sharing product ‘Airdrop’ and the airdrops we are discussing here. They are not connected in any way.

Airdrops in the crypto-verse from a developer perspective are employed for marketing reasons and benefits include generating awareness, understanding users more deeply, raising funds, rewarding loyalty, and achieving a wider distribution of tokens. 

From a user perspective, it is quite simple, airdrops provide users the opportunity to participate in a chance to earn money online and become invested in potentially lucrative projects from the beginning. We will look more deeply into the benefits to each party later in this article but first, it is vital to understand the varieties of airdrops.

Types of Airdrops

There are different types of crypto airdrops. Each requires a different set of actions to avail the reward. Furthermore, it is vital that anyone wishing to participate in any type must first have three things: a crypto wallet, some cryptocurrency such as Bitcoin, EOS, or Ethereum, and a reliable and up-to-date information resource about crypto airdrops such as Twitter or airdrops.io

  • Standard airdrop
  • Bounty airdrop
  • Holder airdrop
  • Hardfork airdrop
  • Exclusive airdrop

Standard airdrop: These crypto airdrops require you to sign up for a newsletter or similar. Interested people can simply register with a name and email ID and instantly qualify for the airdrop. This will be the initial style of DappRadar airdrops and you can sign up here to be alerted when the first one drops in mid-November. 

Bounty airdrop: In this case, you need to perform an activity to qualify for the crypto airdrop. The most common activity includes tweeting about the project.

Holder airdrop: This kind of airdrop happens when you hold certain tokens in your wallet. For example; EOS-based crypto airdrops offer some free tokens to you, provided you are holding EOS tokens in your wallet.

Hardfork airdrop: When a coin hardforks from its original protocol, the holders of the original coin are qualified for the new coin’s airdrop as well. The Bitcoin Cash airdrop on Bitcoin holders is a perfect example.

Exclusive airdrops: Suppose you are a loyal member of a particular project, website, club, etc. You may qualify for exclusive airdrops which everyone else may not. As the name suggests, this airdrop is reserved exclusively for a specific community. Uniswap for example rewarded loyal users In September 2020 with 2500 UNI tokens. Which on the day of delivery equated to around $1250 with no strings attached.

Airdrops for users 

Anybody can fundamentally take part in airdrops but there are a few essentials before getting started. To take part you will first need three things: a crypto wallet, some cryptocurrency such as Bitcoin, EOS, or Ethereum, and an information resource about new airdrops. 

A cryptocurrency wallet is a digital wallet that you can use to store, send, and receive various cryptocurrencies. In regards to choosing a safe crypto wallet, you can refer to our article comparing 5 of the best available in 2020.   

Ethereum and Bitcoin are good examples of root tokens and if you want to take part in airdrops, then you need to have these tokens. You can go to any exchange right now and trade FIAT for those two. They are pretty much available everywhere. Coinbase, Crypto.Com, and Zerion are good places to start.

Keep in mind that in some instances you will get your airdrop tokens in proportion to your stake (the number of root tokens that you have). While we are not advocating you to put your life savings there, it is useful to have a good amount if only to receive increased rewards and not pay exchange fees repeatedly. 

Regarding resources, there is a host available. To really have your finger on the pulse of the crypto-verse participating on Twitter is almost essential. It is one of the only social media sites allowing such free promotion and discussion around blockchain and cryptocurrency. 

There are also dedicated sites such as Airdrops.io that focus entirely on this information. It is important to understand that these sites are usually brokering deals with developers and taking a fee to list and market airdrops. Whilst this is not a problem overall, in order to find the best and most profitable options available you can’t beat some good old-fashioned hard work and internet trawling.

Airdrops.io

Airdrops for dapp developers 

As discussed, airdrops can form a significant part of any project’s marketing efforts. Let’s look at the main ways in which they can help developers build a strong community around their product. 

Increase awareness 

Due to the ever-increasing number of projects vying for space in the crypto-verse increasing awareness of a project has become paramount to marketing teams. Airdrops can add a very active layer to any multi-faceted marketing campaign. 

Investors are constantly being pulled in every direction to read and look at every new, potentially world-changing project. To assess them all would be impossible. But what if a project airdropped you some free tokens? Instantly becoming invested in a project would no doubt drive increased interest. Experienced investors will want to learn more about a project they are now staked in and that in itself is creating a lot of awareness in the project.

Understanding users 

Most airdrop systems require those wishing to receive the tokens to submit some basic information about themselves. Twitter, email address, telegram name, wallet address, and perhaps more personalized data about how they discovered the airdrop in the first place. 

By filling this form and providing meaningful data the company will gain more information about a potential user. Helping them create more focused marketing solutions towards their ideal audience.

Raising money 

Airdrops have proved to be an effective way of raising money from the outset of a project. Let’s look at how that process might work in the real-world to help gain a more detailed perspective. 

Let’s say that you’re building a dapp that runs on the Ethereum blockchain and that dapp will use a native token such as an ABC token. From the start, the project issues 100 million ABC tokens which upon launch will be worth $0.20.

The total market capitalization of the token would therefore be 100 million x 0.20 = $20 million. 

Upon launch, the project can allocate 10 million tokens or $2 million dollars to Ethereum airdrops. At this point, you may be thinking ‘why would I want to give away $2 million in tokens immediately upon launch?’ By doing the above the total capital would be reduced from $20 million to $18 million. 

But, as the airdrop campaign continues, and social media becomes saturated with news about the token, and more eyes ultimately see the project. Provided you have a good foundation and business model, there will be more people posting about the project and researching what is on offer. Therefore increasing the perceived value of the tokens.

Even if the value of each ABC token rises from $0.02 to $0.04, the overall value of your tokens will go up (0.04 x 90) = $36 million. So by subtracting the original amount from this new value, you are left with $18 million. 

By giving away 10% of the tokens, you have raised $36m – $18m = $18m without even selling a single token! That’s how fundraising with airdrops can work.

Rewarding loyalty 

The most recent instance of this method occurred in September 2020 and sent a ripple through the crypto-verse as unsuspecting users of the popular decentralized exchange Uniswap were suddenly gifted 2500 UNI tokens or at that point in time around $1250 – for free! 

Uniswap issued the UNI governance token which allowed all previous users to participate in future decision making for the protocol. Alternatively, those that received the bounty could sell it for Fiat or stake the token. Incentivising the staking mechanism allowed Uniswap to retain tokens within the ecosystem and create liquidity but unfortunately, it would appear most people just sold out and took the money elsewhere. 

This model has been repeated since in other areas of the blockchain tech space and appears to be catching on. Most recently the $RARI governance token was distributed to users of the Rarible platform as a way to reward buyers and sellers of crypto art. 

Loyalty among crypto users is very hard to come by. The average user wants to make as much money as possible by constantly looking for the “next big token”. Some airdrops are constructed in such a way that the more tokens you hold, the more you receive in subsequent airdrops. 

So, if a user is actually loyal to a token and keeps a substantial amount of it in their wallet, they can be rewarded with more tokens by the company. MakerDAO through the popular Coinbase wallet operates a system in this way rewarding users for holding DAI in their wallet with daily rewards. 

At the same time, airdrops can inspire loyalty among users since they are now actually incentivized to buy and keep tokens. This area is ripe for evolution and development and 2020 has seen some benchmark ideas come to the fore. It will be fascinating to observe that evolution throughout 2021. 

Wider token distribution 

One major issue facing any project selling up part of its company in the form of tokens is the issue of whale buyers taking large positions and fundamentally insulting decentralization. One famous example of this was the BAT ICO. 

The BAT ICO had a lot of hype because it was Brendan Eich’s project. Brendan Eich is the same man that created JavaScript and Mozilla Firefox. When the BAT ICO did appear, one whale buyer took control of 20.7% of the BAT tokens in existence. 

Just 5 accounts own more than 50% of the BAT tokens in existence! A big problem for a decentralized project. Airdrops can help here by dropping tokens proportionate to existing holdings.

Airdrops are effective at achieving wide and even distribution as all these companies and dapps are built upon a parent blockchain, like TRON, EOS, Ethereum, etc. Those blockchains are relatively well distributed. Companies can take advantage of that distribution by airdropping their tokens to the holders of the parent blockchain token for example. Using a real-world example here will assist in understanding.

Think about a popular breakfast cereal such as Fruit Loops. Fruit Loops has a wide, diverse, and global audience who enjoy the product. Very often within or on the outside of the product, there will be a marketing tie in with another company. For example a voucher for 10% off at Disney Land. 

Disney Land is simply ensuring the 10% vouchers are distributed fairly and equally amongst a wide and varied audience. In the same way, a dapp project can tap into the users of the specific blockchain or blockchains they are operating upon. 

This method means the project can try to ensure that their token is distributed as widely as possible and they are making sure that a pretty well-distributed and diversified group of people are testing out their product. 

Summing-up

Airdrops are a tool employed by companies to drive increased awareness and distribution. For users they are a way to become invested from the start and to make an income online.

Mostly the arrangement seems like a win-win situation for both parties, but as with anything in the crypto-world, there are fraudsters and scams out there trying to take advantage of naive investors.

Remember to always educate yourself and do your own research. If you do your homework correctly then as an investor you can make money from airdrops. If you are a dapp developer then airdrops will help you reach a user-base and distribution far beyond traditional advertising, if executed correctly.

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