What is a Crypto Airdrop

Whitney Anderson
Whitney Anderson
Technology Writer
Last updated: May 22, 2024
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A Cryptocurrency airdrop is a marketing strategy adopted mainly by blockchain startups that involves giving small amounts of new virtual coins to active members of the blockchain community in their digital wallets.

It’s much more fun and rewarding than its military namesake – not about dropping supplies from the sky but sharing digital wealth to create buzz, interest, and wider ownership.

An airdrop can be free or given in return for small promotional activities such as social media posts. These giveaways have become an important part of the crypto ecosystem serving as powerful tools for community growth, user acquisition, and decentralization.

Crypto Airdrop Meaning Explained by XPS.NET

Crypto Airdrop Meaning

The term crypto airdrop refers to when cryptocurrency coins, tokens, or non-fungible tokens (NFTs) are distributed to qualified crypto wallet addresses typically for promotional purposes.

Some popular crypto airdrops require users to fulfil specific qualifications before they can qualify. For example, the Arbitrum airdrop required user activity on the Arbitrum blockchain network within a certain date range and meeting these criteria grants recipients a share of the assets dropped.

Other times, crypto projects may give away some tokens to users of similar protocols when launching new decentralized applications (dApps). Part of Velodrome users were also given Aerodrome tokens during an airdrop which helped make Aerodrome the leading decentralized crypto exchange on Base blockchain. This method enables them to tap into an existing user base while driving adoption towards their new offering.

This gives room for projects generating user interest alongside industry buzz while increasing chain or protocol activity through various means like distribution among holders, staking etcetera. Through giving out free tokens amongst its community members project initiators can foster engagement as well loyalty among participants who then feel that they own part thereof thus becoming more inclined towards supporting such initiatives.

History Of Airdrops

Since 2014 when the first airdrop was done with Icelandic Auroracoin, this method has continuously evolved thereby creating new trends and technologies within the crypto space.

Airdrops have been used not only during the launch of new cryptocurrencies but also during major blockchain updates and forks. This can be seen when Bitcoin Cash was forked from Bitcoin (BTC) with holders receiving an equivalent amount in BCH to distribute ownership and facilitate a smooth transition for such projects.

As the industry matured; it became clear that apart from being marketing tools, these giveaways were effective at growing decentralized finance (DeFi) project participation as well as promoting decentralized autonomous organizations (DAOs) governance. Therefore community-led initiatives have adopted this approach while distributing voting rights alongside governance tokens thus ensuring wider control distribution which is more fair and equitable.

Besides driving adoption rates higher than ever previously recorded in history, crypto airdrop has become a very powerful tool for building strong communities around specific coins or platforms. Unique reward models like staking can also be utilized during different campaigns so that they can cater for various objectives set by each coin developers team while taking into account what their communities want most.

These events show us just how dynamic things are constantly changing not only within our own lives but also across entire industries themselves – such as those related to virtual currencies.

  • March 2014 – Auroracoin: Iceland’s second largest cryptocurrency, Auroracoin, was an early and bold experiment in peer-to-peer digital cash that sought to replace the Euro after the country’s devastating financial crisis of 2008.
  • September 2020 – Uniswap: Uniswap conducted an airdrop to over 250,000 addresses. So far, at $6.4 billion in total value, it is the biggest crypto airdrop in history.
  • September 2021 – dYdX: The decentralized derivatives trading platform awarded past users with an airdrop of its DYDX token which is now among the top 100 cryptocurrencies by market capitalization.
  • November 2021 – Ethereum Name Service: Ethereum Name Service (ENS) became a DAO with one of the largest ever airdrops by market capitalization.
  • March 2022 – ApeCoin: The Bored Ape and Mutant Ape Yacht Club NFT projects offered holders a free governance token called Banana (APE). In addition to voting rights and other governance powers, APE tokens also have special access to events and merchandise.
  • December 2022 – Bonk: On Christmas day, the Solana community received the dog-themed token BONK as an airdrop. Within a year of launch, it minted several Bonk millionaires.
  • March 2023 – Arbitrum: Abitrum blockchain’s governance token (ARB) was distributed via an airdrop. The protocol has grown its number of active protocols from zero to over 550 within three months following its mainnet launch.

How Does an Airdrop Work?

There are two primary ways in which cryptocurrency airdrops work — automatic distributions and claimed drops.

Automatic distribution

The more common type is the automatic distribution where you don’t have to do anything besides having your wallet ready for receiving funds. Sometimes you may need to interact with the product, like visiting a website or using an app, but often it’s enough to just have a balance in a specified token. Most recently $DOG tokens were sent to eligible wallets on the BSC network. They are fractionalized NFTs that represent partial ownership of Doge NFT which was purchased at auction for ~1,700 ETH. Token recipients got them automatically without any additional steps required.

Claimed drops

The rarer type is the claimed drop where you usually need to perform some actions to be able to receive tokens. It can be as simple as connecting your wallet and authorizing the transaction or you may need to complete more complex tasks like quizzes or interacting with smart contracts. Seamless Protocol conducted this kind of airdrop recently but always be careful when connecting your wallet as sometimes there might be security risks involved (read more about this in the “Airdrop Scams” section). Also, some projects require users to become eligible for an airdrop by fulfilling prerequisites such as holding a certain amount of another token or participating in specific activities within the project’s ecosystem.

Claimed drops

Stakedrops

Stakedrops are another variation where instead of tokens being distributed, it’s NFTs that represent monetary stake on some DeFi platform. For example, Aerodrome protocol airdropped veAERO NFTs that could then be staked to earn % of trading fees by voting for liquidity pools on the platform.

Types of Airdrops

There are several different types of airdrops, each serving its own purpose in terms of promotion and adoption for protocols or blockchains.

  • Standard Airdrop – This is where people express interest and provide a valid crypto wallet address so they can receive free tokens. Standard airdrops don’t require additional actions but usually need to be claimed which may require gas fees.
  • Bounty Airdrop – Recipients need to complete specific tasks or “bounties” to qualify for the airdrop. Tasks could include things like social media promotion, content creation or other community-building activities.
  • Holder Airdrop – If you hold a particular cryptocurrency or NFT then you may be eligible for receiving some free tokens that will be distributed among all holders based on their balances.
  • Exclusive Airdrop – Only a selected group of users such as early adopters or community members will get these tokens, not everyone can participate in it.
  • Raffle Airdrop – Recipients are chosen at random from a pool of people who have shown interest in participating in this type of giveaway, often through some kind of lottery or random selection process.

Some of the most significant crypto airdrops also exemplify how they work and support decentralization efforts. The Uniswap airdrop, still the largest on record, and the Abitrum airdrop, which helped Abitrum launch its DAO, are good examples. In both cases, governance tokens were provided in the airdrops, allowing holders to vote on proposals for each project.

Uniswap Airdrop

The Uniswap airdrop awarded at least 400 UNI tokens to wallet addresses that had used the protocol before September 2020.

In total, over 250,000 wallet addresses qualified based on their interactions with the Uniswap decentralized exchange. However, distribution for the airdrop favored those with larger liquidity pool positions; power users on the platform earned greater allocations.

What began as a governance token airdrop may soon see UNI holders rewarded with protocol fees for staking and delegating their voting power — further incentivizing participation and decentralization.

Arbitrum Airdrop

The much-anticipated Arbitrum2023 airdrop shared the same goal as Uniswap: distributing governance tokens toward blockchain decentralization.

A points system was employed in Arbitrum’s airdrop campaign where specific activities on-chain made wallet addresses eligible for one of ten distribution tiers (up to 10,250 ARB tokens). Token holders could then vote on proposals for the Arbitrum DAO which can allocate funding via ARB tokens to protocols on-chain.

Governance Token Airdrops

This resulted in many protocols like GMX and Radiant Capital using their ARB allocations to fund additional airdrops that incentivized new users to join their platforms — highlighting how this can cascade growth across an entire blockchain ecosystem.

Airdrop Scams

Scammers love riding off hype generated by an upcoming or ongoing drop. When big drops happen social media platforms light up with fake links claiming your share of free coins — usually accompanied by a low-quality Photoshop job making it seem like an official account made the post.

To “claim” an airdrop, you often have to connect your crypto wallet to verify eligibility and then claim tokens if eligible. So — at first glance — a link asking you to connect your wallet might not seem suspicious. However, the smart contract on the other end could be malicious and drain your wallet of all its assets.

In bolder scams, scammers posing as representatives from the project may even offer to help you claim the airdrop. All they need is for you to “verify” your wallet’s recovery phrase or private key. Either one of those pieces of information grants someone else full access to all funds held within that address; which can then be transferred out into another wallet owned by the scammer.

To avoid falling victim to an airdrop scam, never click on claim links you find on social media platforms (Twitter, Discord, Telegram, Reddit), receive by email or receive via direct messages. Navigate directly to the official project page and look for airdrop information there — reputable projects will make these details readily available through their official channels and websites.

People’s demand for new tokens has become another way for swindlers to cheat them. In this setup, an individual might find an unknown token sitting in their wallet and decide to play around with it. They will then click on a link that comes up after reviewing the transaction through platforms like Etherscan.info. But usually, this link takes them to a fake website created to collect personal wallet details.

Hence, any random or unrequested token deposits should be ignored. Move cautiously within such an ecosystem and only engage with projects that have been properly vetted or are popular among people in the know. Being careful and giving priority to safety can help one avoid falling into the hands of fraudsters who use different tactics while also protecting their assets better.

The crypto community has been debating the usefulness of coin releases and their associated tokens which are often lacklustre since airdrops came into existence.

Pros and Cons

Pros

  • Rewards pioneers: Airdrops allow projects to reward early believers and keep them on board.
  • Boosts marketing and awareness: When people receive free tokens it creates hype around a project thereby increasing its visibility and potentially attracting more users.
  • Facilitates distributed ownership: By dropping tokens across many holders, projects can be decentralized in terms of ownership and governance which is one of the key principles behind blockchain technology.

Cons

  • Pose security risks: Scammers can take advantage of airdrops through phishing attempts that may compromise the safety of users’ assets.
  • Enable possible pump-and-dump schemes: Some bad actors could use an airdrop as a tool to artificially inflate token prices before selling off leading to crashes in prices.
  • Present potential worthlessness: Most air-dropped coins have no real-world use or value proposition hence rendering them worthless.
  • Raise tax considerations: In some jurisdictions receiving tokens via an airdrop might attract taxes that individuals must consider when dealing with such assets. 

The Bottom Line

A crypto airdrop definition refers to the process where digital currencies or tokens are freely given away to certain wallet addresses. Airdrops have become an important part of the cryptocurrency economy and provide new ways for communities to form around projects as well as increase adoption rates while still rewarding loyal members. Many organizations also employ this method to distribute voting power among the community thus decentralizing governance structures themselves.

Nevertheless, like anything else related to cryptocurrencies, there are potential risks associated with participating in an airdrop. Therefore approach these rewards carefully by understanding what type of token it is, how trustworthy the project behind it seems and what its true value proposition might be. Do thorough research on any giveaway before entering into one; also never share your wallet details or other sensitive information unless you are absolutely sure about where they’re being sent from.

As always, exercise caution when dealing with anything crypto-related as some initiatives could be legitimate while others need closer scrutiny and may even turn out not to be. Stay informed but don’t be gullible so that you can safely navigate through different types of airdrops which could end up benefiting you due to their unique distribution mechanisms.

FAQs

What is a crypto airdrop in short terms?

A crypto-airdrop is the free distribution of cryptocurrency tokens or coins by an organization to selected wallets usually for advertising purposes or building communities around digital currencies.

How can I find legitimate free crypto airdrops? 

Official channels like websites, social media platforms such as Facebook, Twitter etc., and community forums should be used since reputable projects will announce their intentions there. Be careful with unsolicited offers because many times they turn out to be scams. CoinMarketCap and CoinGecko also list upcoming verified drops that are worth participating in.

What do I have to do to qualify for an airdrop?

Different projects have different criteria but most require participants to hold specific cryptocurrencies or NFTs related to them, take part in activities within their ecosystems like games etc., and complete certain tasks (bounties) set out by organizations behind these campaigns among other things outlined in official details provided during each event.

What is an NFT airdrop?

This involves giving away non-fungible tokens instead of traditional fungibles which represent ownership rights/governance rights/utility functions within respective project ecosystems.

How do I claim an airdrop securely?

Follow instructions given by official sources via recognized websites or social media pages that belong to legitimate representatives associated with particular brands running promotions at any given time. Avoid sharing sensitive information such as private keys etc., unless necessary and only if requested official staff members involved directly organizing these giveaways on behalf of organizations concerned with them.

Are airdrops taxable?

Being given tokens may be seen as a taxable event in some places, much like earning money. However, there are different tax rules concerning airdrops around the world and they can be complicated so it is good to talk to an accredited tax adviser.

May I sell airdropped tokens immediately?

You can usually sell them right away but you have to know what kind of tokenomics the project has and whether or not there are any vesting schedules put in place. There could be lock-up periods during which time these tokens cannot be sold.

How do I safely store my airdropped tokens?

It is best practice to keep them in your own non-custodial wallet where you control the private keys. For this purpose, hardware wallets or reputable software wallets such as MetaMask should be used as they offer greater security when storing cryptocurrencies.

Can airdrops aid money laundering?

No, airdrops themselves do not facilitate money laundering activities though they could still attract bad actors who might want to use them for such purposes. Therefore projects together with users must adhere to appropriate anti-money laundering (AML) policies and know-your-customer (KYC) practices.

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XPS's editorial policy focuses on providing content that is meticulously researched, precise, and impartial. We adhere to rigorous sourcing guidelines, and every page is subject to an exhaustive review by our team of leading technology specialists and experienced editors. This method guarantees the integrity, pertinence, and utility of our content for our audience.

Whitney Anderson
Whitney Anderson
Whitney Anderson is a dynamic technology writer and content creator known for her quick learning and strong interpersonal skills. With a passion for community service and travel, she excels in crafting engaging tech content and leading diverse teams. Whitney is eager to bring her tech expertise and creativity to make a significant impact in your organization.

Why Trust Us

Our editorial policy emphasizes accuracy, relevance, and impartiality, with content crafted by experts and rigorously reviewed by seasoned editors for top-notch reporting and publishing standards.

Disclosure
Purchases via our affiliate links may earn us a commission at no extra cost to you, and by using this site, you agree to our terms and privacy policy.

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