What Are Crypto Airdrops? A Beginner’s Guide

The crypto world has evolved over the years, becoming increasingly more accepted and popular among users and even countries. Many crypto projects have become successful, while others are still in their early phases, doing their best to prosper in an extremely volatile market. Crypto airdrops are one of the most popular tactics to raise awareness of a crypto project, yet many users wonder what are crypto airdrops? It’s when a crypto project gives away the project native token for free to promote awareness and raise engagement from its community. Users are eligible for the token by performing simple tasks such as following the project on social media, joining its Telegram or Discord groups, or simply holding the project’s native token in your wallet. Let’s take a closer look at what crypto airdrops are, along with examples of success and danger.

What Are Crypto Airdrops?

Crypto airdrops are a popular method within the blockchain ecosystem for distributing tokens or coins en masse to wallet addresses. Generally, their purposes include fostering new projects, rewarding community members, and creating user engagement.

How Do They Work?

Crypto airdrops have different stages in their process, so let’s take a closer look at them.

Eligibility

Participants often have to meet certain conditions to participate in an airdrop. Usually, there has to be some kind of cryptocurrency on their wallet, or they need to be on some mailing list or have completed some social media sharing-related task.

Announcement

The project team announces the airdrop details through various channels like social media, forums, and their official website, listing the eligibility criteria, the number of tokens to be distributed, and the date of distribution.

Registration

Participants are asked to register their wallets for the airdrop in question. Wallet addresses or any other identification details might be needed for further assurance.

Distribution

Tokens are airdropped directly into the wallets of eligible participants on the stipulated date. This can take an instant or it may take some time, depending on the project and the technology behind it.

Post-Airdrop Engagement

The majority of projects, after distribution, incentivize participants to use their platform or

community more by trading their tokens, providing liquidity, or taking part in governance.

Goals of a Crypto Airdrop

While primarily a marketing tool, airdrops can serve other strategic purposes in a crypto project.

Marketing Tool

Airdrops are often used as a form of marketing and to generate hype around a new project. Projects give out their tokens for free in return for attention and to gain some initial users.

Community Building

Airdrops help create a sense of community by rewarding loyal users and engaging new ones, which is very important for the long-term success of a project.

Decentralization of Distribution

Airdrops offer a method for fairly distributing tokens to a larger audience so that ownership is not concentrated in a few wallets.

Reward

Many projects give rewards to the users who have participated in their platform earlier, thereby creating a sense of loyalty and continued participation.

Liquidity

Projects can distribute tokens widely to increase market liquidity so that new users can buy, sell, or even trade tokens.

A Brief History of Crypto Airdrops

The concept of airdrops has evolved since its inception, switching from simple giveaways to veritable strategic tools to promote marketing, community engagement, and liquidity within a project, with quite a significant increase in popularity during the 2017 ICO boom. In one way or another, they have existed since the early days of cryptocurrency. The Bitcoin fork that created Bitcoin Cash in 2017 is one of the first examples of Bitcoin's existing holders receiving BCH tokens. The practice of token distributions to existing holders has set a path for modern strategies in the field of airdrops. Airdrops then started to become increasingly popular for projects to get their names out and build traction. In 2018 and 2019, many projects were doing airdrops to market themselves or to decentralize their token distribution. This has continued into 2020 and beyond, especially since DeFi projects started emerging.

Successful Airdrops in History

When wondering what are crypto airdrops, the next question usually is, are they successful? Let’s look at some stories of success with crypto airdrops.

Uniswap (UNI)

Uniswap is an Ethereum blockchain-based Decentralized Exchange (DEX) that enables its users to exchange cryptocurrencies without any intermediary. It operates on an automated market maker model (AMM) that allows participants to supply liquidity pools and get compensation by means of transaction fees flowing through those pools.

In September 2020, Uniswap airdropped 400 UNI tokens to every wallet that had ever interacted with their decentralized exchange before a certain date. At its peak, this airdrop was valued at over $12,000, creating sensational excitement to showcase the potential rewards of participating in decentralized finance.

- Initial value (September 2020): $3.50

- Peak value (May 2021): $44

- Profit percentage growth: 1157%

This exponential growth highlighted the demand for governance tokens in the DeFi space, further solidifying Uniswap's market leader position.

(OSMO)

Osmosis is a decentralized exchange built on the Cosmos blockchain, designed for trading and liquidity provisioning. It also operates on AMM, enabling users to create custom liquidity pools and earn rewards through the governance token OSMO. Osmosis focuses on interoperability and user control over assets. The exchange ran a series of airdrops in 2022. The airdrops gave substantially big returns to those who got in on them and spent some time on the platform while the OSMO token was catching on in price, with some users seeing returns of several hundred percent.

- Initial value (June 2021): $4

- Peak value (January 2022): $11

- Profit percentage growth: 175%

1INCH

1inch is a decentralized exchange aggregator that seeks the best prices across various DEXes, enabling users to optimize trade execution with minimal slippage. It increases liquidity and efficiency by routing orders across different exchanges. It supports a wide range of tokens available on Ethereum and other blockchains for smooth and inexpensive trading. 1INCH distributed its tokens to users who had previously used the platform. The airdrop included 1INCH tokens that significantly increased in value shortly after distribution. Early adopters were able to profit from trading the tokens as the platform grew in popularity.

- Initial value (December 2020): $2.50

- Peak value (may 2021): $7.50

- Profits percentage growth: 200%

The airdrop in question incited user activity and was a signal of the rise in popularity of DeFi platforms.

Ethereum Name Services (ENS)

Ethereum Name Service is a decentralized domain name service which simplifies ETH addresses into human-readable names (yourname.eth). It increases the usability and utility of the blockchain by greatly simplifying sending cryptocurrencies and access to decentralized applications. ENS is based on the Ethereum blockchain, furthering usability and interoperability inside this ecosystem. The company airdropped its governance tokens, ENS, to the holders of .eth domains in November 2021. Participants who received the tokens saw the value increase considerably, rewarding early users of the platform. The airdrop was well received since decentralized web services were beginning to be highly welcomed.

- Initial value (November 9, 2021): $40

- Peak value (November 10, 2021): $85

- Profit percentage growth: 112.5%

The airdrop not only rewarded the early adopters but also raised awareness of the ENS project.

Gitcoin (GTC)

Gitcoin is a platform that funds the development of open-source software. It distributed GTC tokens via airdrop among its community members who had engaged with the platform in different ways. The token’s value increased significantly, thus rewarding the supporters.

- Initial value (May 2021): $0.80-$1.00

- Peak value (November 2021): $18.50

- Profits percentage growth: 1750%

PancakeSwap (CAKE)

PancakeSwap is a DEX within the Binance Smart Chain that enables crypto trading while providing liquidity through AMM. With much lower fees and faster transactions than Ethereum-based DEXes, farming and staking are some of its strong points. This decentralized exchange also ran one popular airdrop campaign. Early users who were airdropped CAKE tokens saw substantial profits as the token gained traction within the DeFi space.

- Initial value (September 2020): $1

- Peak value (April 2021): $40

- Profit percentage growth: 3900%

The impressive rise in CAKE tokens highlighted the success of PancakeSwap and the growing DeFi ecosystem on Binance Smart Chain.

dYdX (DYDX)

dYdX, a decentralized trading platform, carried out an airdrop for the platform’s users. For many, this came in the form of about 1,000 tokens being distributed.

- Initial value (August 2021): $8

- Peak value (February 2022): $27

- Profit percentage growth: 237.5%

What Are Retrodrops?

Retrodrops represent a form of token distribution targeting already existing users of a project or platform who have interacted with it in the past. Unlike traditional airdrops, which may distribute tokens to any entity fitted into particular criteria or for mere promotional purposes, retrodrops ensure that the rewards are given to loyal users as per their past activity. This is done to incentivize early adopters and the community involved with a project from the beginning.

Key Features of Retrodrops

Targeted Distribution

Retrodrops are meant for specific users who, at some point in the past, utilized a platform or held a certain type of token. This includes users who have supplied liquidity, participated in previous funding rounds, or have voted in governance.

Rewarding Loyalty

Retrodrops are mainly used to reward loyal users who have contributed to the project's success for some time, the main goal being to create a sense of community and foster long-time engagement.

Data-Driven Eligibility

Retrodrops rely on user activity data to determine wallets eligible for Airdrop. Projects scan blockchain interactions to compile lists of users that fit the predefined criteria, ensuring settlement is done with actual usage in mind and not speculative interest.

Incentivize Future Participation

Retrodrops are a great way to reward past behavior for continuing to interact with the platform, which may incentivize user retention and engagement.

Retrodrops VS Airdrops: A Comparison

While both retrodrops and airdrops involve the distribution of tokens, they differ significantly in their approach, purpose, and execution.

Eligibility Criteria

-Airdrops are often open to a very large pool of potential participants. Sometimes, users simply need to hold a certain token, while other times, they might be asked to sign up for an event or merely register their wallets.

-Retrodrops focus more on the target users who have directly interacted with the project in the past. Eligibility to receive retrodrops usually depends on what the user has done in the past, which means retrodrops are more personal and exclusive token distributions.

Purpose

-Most airdrop ideas are promotional in nature. They are essentially designed to create awareness, ignite interest, and quickly build up a user base. Airdrops can be considered a marketing tool for attracting new users and creating hype around a project.

-In contrast, retrodrops are targeted at rewarding users who have already participated. Emphasis is put on loyalty, appreciation, and support, creating a community of valued and engaged members.

Community Engagement

-Airdrops can occasionally fail to create the right kind of community activity. Users could simply claim airdropped tokens and then not use them on the platform, using them for speculative trading and short-term interest in another platform.

-By targeting loyal users specifically, retrodrops are likely to yield meaningful engagement. Users who get retrodrops have already put time and effort into the platform and are more likely to continue participating.

Distribution Mechanism

-Airdrops are usually straightforward and usually use mass distribution mechanisms. Projects can send tokens to all qualified participants, making it highly efficient.

-Retrodrops can be more complex since their distribution is based on user data analysis and interaction. Being data-driven means that tokens must be dispensed while reflecting actual usage, which could be more time-consuming and resource-hungry in implementation.

Market Impact

-Airdrops sometimes bring high volatility in token prices. Since airdrop campaigns distribute large numbers of tokens into the market, the immediate market impact might cause prices to be unpredictable.

-With retrodrops, the recipients would probably hold onto their tokens for a longer time, thus stabilizing the token price. Highlighting rewarding loyal users creates a much more stable community where, instead of immediate gain, the long-term value would be in focus.

What is an Airdrop Scam?

An airdrop scam happens when cyber criminals impersonate the service of an airdrop to scam users for personal information, private keys, and funds. They clone legitimate airdrop campaigns and generally use the names of other well-known projects to add some sort of credibility. The scammers try to make users quickly jump on board and lure them with promises of free tokens, which are just a scam.

How Do The Scams Work?

Airdrop scammers have many different ways of stealing their victim’s information, let’s look at some of them.

Phishing Websites

Scammers create fake websites that are similar to the main project sites. Users are often requested to input wallet addresses or personal details to claim tokens. Once the info is entered, it’s stolen.

Social Media Fraud

Many fraud cases happen through social networking platforms where scammers create fake accounts and impersonate official project accounts. These accounts announce a non-existing airdrop and urge users to get their tokens.

Token Swindles

Some scams distribute valueless tokens as what seems like an airdrop. Users waste time and resources claiming such tokens only to realize they hold absolutely no value.

Private key Requests

Legitimate projects never ask for private keys. Scammers lure users by promising big airdrops and then asking them for their private keys, giving them full access to the user’s wallets.

Fake Wallets

Scammers sometimes make fake wallets and claim this facilitates the airdrop. The users who download this wallet virtually give scammers access to their funds.

Token Approval Scams

Token approval scams in airdrops happen when scammers manipulate users to obtain permissions to their wallets. Many fraudsters advertise fake airdrops, asking users for permission to approve token transfers. After the permissions are given, the scammers drain the funds from that wallet.

Famous Airdrop Scams

Several high-profile airdrop scams have gained notoriety over the years, affecting many unsuspecting users. Let’s look at some of them.

Ethereum (ETH) Airdrop Scam

Probably the most well-known scam, in 2017, an email campaign that supposedly came from the Ethereum Foundation and promised an airdrop to ETH holders started to make rounds online. The email would forward recipients to a website that resembled the official Ethereum website, where they were asked to fill in their private keys to receive their airdrop, and then the funds from their wallets were stolen. This scam capitalized on the grown interest in Ethereum and the mania surrounding airdrops by preying on users' eagerness to get free tokens.

Uniswap Airdrop Scam

Scammers took hold of the action right after the legitimate Uniswap UNI token airdrop back in 2020. Basically, scammers created social media accounts supposedly for Uniswap, promising free UNI tokens in return for completing different tasks. Many users fell into the hands of these scams, provided wallet addresses and private keys, and significantly lost assets to such scams.

Bitconnect Airdrop Scheme

The notorious Ponzi scheme crypto, Bitconnect, attempted to lure users with an airdrop. Despite Bitconnect being a scam, the name gained such popularity that scammers announced fake airdrops of particular coins, requiring users to invest in some exchange for claiming airdropped tokens. Victims often lost their investments, and many were left without their assets due to the eventual collapse of Bitconnect, along with the airdrop scams.

BTT Airdrop Scam

Within days after BitTorrent Token's inception in early 2019, several airdrop scams started using the BTT brand. Scammers created websites offering free BTT tokens in exchange for personal information or even money to cover transaction fees. Many users provided sensitive data and subsequently had their wallets compromised and their funds stolen.

Fake Airdrop Scams on Telegram

Impersonations of projects in Telegram were reported along with fake airdrops in 2021. Users were made to join groups promising big rewards after sending links to other users or inviting them. Instead of tokens, participants started having their wallets drained by scammers who used phishing techniques to access their funds.

Conclusion

As we’ve seen, crypto airdrops are a pretty effective means of token distribution and marketing both for emerging or established crypto projects. Many users have benefited from unexpected tokens, which then turned into significant profits. Nonetheless, as with everything in the world of crypto, not everything is as rose-colored as we may expect. Crypto airdrops can have a negative or positive impact on the market, and many users might try to speculate to increase their profits to the max, creating even more volatility in the market. Also, scammers lurk in the darkness of the internet, looking for the perfect opportunity to pitch a fake airdrop and steal their victim's information. However, if you were wondering what are crypto airdrops and have reached the end of this guide, then you are now armed with one of the strongest weapons in the crypto world, information.