The cryptocurrency market is a landscape of opportunities and sometimes, they are recurring events that occur in cycles referred to as Metas. Since 2017, blockchain has continually rewarded early and active participants interacting with chains, protocols and users engaged in generating awareness for projects.
Recently, the airdrop buzz skyrocketed in the crypto industry with the breakout of SocialFi airdrops and new mechanisms such as Tap-to-Earn. Whether you’re a newbie in the crypto industry or a professional, this article will provide in-depth information on airdrops, how they work and how to protect against scams.
What is a Crypto Airdrop?
A crypto airdrop is a blockchain marketing strategy that involves sending native tokens to users’ wallet addresses as a reward for previous network transactions or promotional services.
Cryptocurrency airdrops are often startup marketing methods employed with the aim of a broader reach for a new exchange, wallet, protocol, blockchain, or platform in exchange for future incentives.
How Does a Crypto Airdrop Work?
Crypto airdrops are incentive-based rewards that require free or paid engagement with a cryptocurrency network or platform. These airdrops serve as incentives for meeting certain requirements, often set by a project’s team. Before airdrops, cryptocurrency projects typically disclose their roadmap, token allocation, snapshot time, eligibility checker, claim period, and TGE (Token Generated Event) to ensure transparency with their community.
Roadmaps outline the token launch period, which can occur in any quarter of the year, while token allocation details how tokens will be distributed among teams, investors, and airdrop participants. The eligibility checker allows individuals to verify whether they meet the requirements. If eligible, participants can view the total number of tokens allocated to their wallet, which will be available for claiming during the claim period.
The claim period often spans days or weeks before the token launch, also known as the listing date or Token Generated Event, during which participants can finally withdraw and sell their tokens. Snapshot time marks when the team takes a screenshot of eligible wallet addresses. Once the snapshot is complete, further engagement for airdrop purposes will not count.
What is The Purpose of Crypto Airdrops?
Crypto airdrops are a promotional approach for cryptocurrency projects to increase market adoption, raise awareness about product goals and acquire new users. The goal of an airdrop is to capture the blockchain market and convert potential users into active users or customers through the distribution of tokens.
Types of Crypto Airdrops
Airdrops have various forms in which users can get rewards. However, most of these airdrops can be classified into certain groups, such as:
1. Tesnets and Retroactive Airdrops
Tesnet airdrops are rewards that require users to interact with blockchain networks and protocols using tokens that don’t have exchange value. These tokens can be referred to as faucet tokens, and they’re used to experiment with the functionality of a cryptocurrency platform without compromising the main blockchain.
Crypto startups reward product testers for helping them verify the functionality of their platform or product before going live. These Tesnets may come in different phases or volumes depending on the smart contracts, additional features or debugging.
On the other hand, A retroactive airdrop is a distribution of tokens to users based on their past activities on a crypto platform, protocol, or blockchain network. It rewards those who transacted on the blockchain, contributed to the network, participated in the DAO (Decentralized Autonomous Organization), or held a specific token before a particular date and time.
The interaction can be free, such as Testnets, or Mainnet transactions which can be paid. Sometimes, a crypto project may allow users to perform transactions on their Mainnet platform after the Testnet has ended to increase their future token allocation.
2. Bounty Airdrops
A bounty airdrop occurs when users engage in promotional activities or complete specific tasks in exchange for an airdrop. The airdrop serves as a social media marketing strategy employed by crypto startups to increase project awareness.
Users can engage in social media tasks such as liking a promotional tweet, retweeting, tagging friends, commenting, following the project handle, joining the Discord and Telegram community etc. for potential airdrops. The company running the bounty campaign often attaches points to the various tasks and bases the eligibility of users on how many points they accumulate before the campaign ends.
3. Holders and Exclusive Airdrops
A holder airdrop is a type of airdrop that rewards users based on the number of tokens they hold in their wallet within a particular timeframe. Crypto companies often use this type of airdrop as a loyalty reward for their investors.
On the other hand, an exclusive airdrop is a type of airdrop that rewards active members of a community beyond holding a token. For example, community event participants, ambassadors etc. can get token incentives for their active contributions to the community through educational content, referrals, and promotions across social media.
4. Raffle Airdrops
A Raffle airdrop is a lottery technique employed to reward airdrop task participants when there is a large volume of signups or huge numbers of participants during the campaign period. The airdrop ensures transparency to the community, and sometimes it can serve as an additional approach to an existing airdrop distribution method.
Common Categories of Airdrops
There are several types of airdrops in the cryptocurrency world. Whether it’s free or paid, crypto airdrops can be classified into four common categories, which include:
1. Exchange and Platform Airdrops
Crypto exchanges can distribute tokens to reward users’ loyalty or attract more people to the exchange. The airdrop can require users’ past interactions or events and promotional activities. In such cases, crypto exchanges can reward liquidity providers and promoters who achieve successful referrals on their platform with tokens.
Decentralized exchanges can reward users for previous transactions such as swapping, staking, and bridging cryptocurrency tokens, among other activities. The airdrop can either be Tesnet or retroactive interactions within a particular period.
2. Network and Protocol Airdrops
A new blockchain network or protocol can introduce airdrop opportunities to reward developers, node runners, validators, Tesnet and Mainnet participants, etc. They can launch an airdrop campaign to capture the blockchain ecosystem through token distribution.
3. Wallet Airdrops
Cryptocurrency wallets can launch airdrop for users who have transacted frequently on the wallet. The transactions can consist of sending and receiving crypto coins or tokens, swapping and bridging etc.
4. Gaming Airdrops
Play-to-earn games can offer airdrop opportunities to active players. Crypto companies can offer airdrop reward techniques to promote their product and increase the playtime of users. Similar to other airdrops, there’s an eligibility period when users can invest in playing the games until a snapshot is taken.
5. NFT Airdrops
NFT projects can launch an airdrop to reward holders’ loyalty or promote the NFT collection. A project can create a token-based incentive to enhance community trust, generate sales, and sell out the NFT collection faster.
Advantages of Airdrops
There are several ways airdrops can benefit startups and the blockchain ecosystem. Some of the advantages of airdrops include:
1. Improves Adoption
Airdrops can develop users’ interests and enhance market adoption. When cryptocurrency projects are incentivized with airdrops, they can attract new users and developers who can contribute to their blockchain.
2. Cost-Effective Marketing
Token incentives can stimulate product reach at a low cost. Social media tasks, for example, can help projects balance their marketing budget and reach more audiences through post engagements. Other promotional efforts such as educational threads, online events etc. can also assist crypto startups in attracting users without overly investing in advertising.
3. Enhances Community Building
Projects rewarding active or loyal community members can increase community engagement for potential opportunities. Token incentive prices can be appreciated, and users who stick around can buy and sell the tokens to increase price volume and stimulate a sense of community.
4. Enhances Partnerships and Funding
Crypto startups can use successful airdrops to attain strategic partnerships and secure potential funding. The brand visibility and market adoption can increase partnership interests and attract potential investors for further project development.
Disadvantages of Airdrops
Crypto airdrops can adversely impact startup projects. Some of the disadvantages of airdrops are:
1. Airdrops Don’t Guarantee Loyalty
After a token launch and distribution, some people may not further engage with the project after claiming and selling off their tokens. Projects can struggle to get engagement on posts and have a reduced feedback rate in the community channels.
2. May Reduce Token Price
Not everyone engaging in a crypto project is interested in its future. Some people are solely airdrop hunters or Jeeters willing to sell tokens for a quick profit. When there’s an absence of token utility, demand or a strong community, people can sell off their tokens at ridiculous prices, which can cause the price to plummet.
3. Airdrops Can Discourage Some Investors
Airdrops can deter certain angel investors or venture capitalists from investing in crypto startups if they prefer alternative methods for marketing, market adoption, token distribution, or product scalability.
Potential Risks of Airdrops
There are numerous airdrops constantly created in the cryptocurrency market today. While they can help users with learning, profit, and adoption, airdrops can also expose users to certain risks which include:
1. Threat to security
Hackers can exploit users with fake airdrop opportunities while disguising themselves as founders to engage in phishing scams. When users connect their wallets to the malicious airdrop claim site, attackers can wallet-drain them and sell off the assets.
2. Airdrop May be Worthless
Users can go through strenuous activities or provide liquidity for airdrops that may eventually be worthless. Sometimes, the founders and investors can defraud their community via the over-allocation of tokens. During listing, they may dump these tokens on their community until the token price becomes valueless.
How To Reduce Potential Risks of Airdrops
While scammers are increasing potential ways to defraud with airdrops, users can minimize these risks by observing some preventive measures, which include:
1. Background Research
The authenticity of a cryptocurrency project is crucial to ensure safety. Cryptocurrency projects have a white paper that provides in-depth information about the team, product, utility, tokenomics etc. Users should conduct personal research on the team, solution-centric approach, utility, tokenomics, community strength etc. to reduce the risk of being defrauded.
2. Engaging Airdrops With Burner Wallets
Separating a major wallet for storing valuables from an airdrop wallet can reduce the risk of losing assets to scammers. When there are multiple wallets, users can send a claim fee to the airdrop wallet also known as burner wallet and in case such wallet is compromised, only the claiming fee would be lost.
3. Interacting With Trusted Airdrops
Sometimes scammers can airdrop fake NFTs and tokens to users’ wallets. They can use unsolicited gifts to lure users into claiming or interacting with the airdrop to drain the wallet. When there’s any doubt about the source of an airdrop, avoiding interaction with such a freebie can reduce the risk of losing valuable assets to scammers.
Conclusion
Crypto airdrops provide numerous opportunities in the blockchain ecosystem. While airdrops may help projects and users achieve various goals and targets, airdrops also have potential downsides and risks. Therefore, it’s important to consider both the ups and downs before launching or participating in token incentives.
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