What is an Airdrop?

By Kirsty Moreland

You’ve seen it online and maybe you’ve even heard your friends talking about them – but just what is an airdrop? Here, we explain in plain English.

The last twelve months have been a whirlwind for crypto. Among the buzz, airdrops are one of the newest and most talked about terms. Airdrops sound pretty exciting – and they are. If you’re picturing military cargo dropping from the sky, we’re going to have to burst your bubble. Sorry.

So what exactly is an airdrop – and how has this strange terminology made it into our crypto vernacular?

In this article, we cover all you need to know about airdrops to set you on the path for understanding them, the risks they entail and what benefits they might offer you.

What is a Cryptocurrency or NFT Airdrop?

In the most basic sense, an airdrop is when a project issues small amounts of its coins or tokens to multiple crypto wallets, free of charge.

Airdrops are traditionally a guerilla marketing tactic. Allowing lesser-known projects or coins just starting out to increase awareness and build community and circulation. However, as the crypto, NFT and DeFi ecosystem evolve, so have the ways in which projects employ airdrops.

As a result of that evolution, the word airdrop now covers a multitude of different contexts. So if you’re feeling confused, we feel you. We’ve had a year of airdrops in 2021 and it’s high time we get the idea straight. So goodbye confusion – here is your definitive guide to airdrops.

Different Types of Airdrop

As we mentioned, the practice of using airdrops is evcolving over time in sync with whatever was happening in the crypto scene more broadly. So let’s begin with the original use case, and then move on to some of the more recent developments.

Standard or Bounty Airdrop

The OG of its class, the bounty airdrop has the objective of increasing awareness of up-and-coming projects before their initial coin offering on an exchange. How do they do this? Well, they provide you with a small incentive in the form of cryptocurrency in exchange for a little publicity.

Supply and demand is the most fundamental law of economics. This law is the driving force behind the entire business world, and it also applies to the crypto world. Standard drops are all about creating demand. The more people are aware of the project, the more mouths are talking about it, the more likely there is to be a demand for that token. This gives the project a chance to drive up the value of their native token. Before the defining moment when it features on an exchange.

Standard Airdrops typically do not require you to hold any coins or tokens to be eligible. Which makes sense, since they are generally in use by new or unknown projects. All you need is a crypto public address to deposit the tokens. 

Users are typically performing very simple and non-resource-intensive tasks like providing email addresses or signing up for a newsletter in exchange for, say, $5 worth of crypto tokens. This incentivizes the users to share some of their information with the project’s team that they may use for marketing or other purposes. Further, the user is also likely to share the project within his/her circle, thus increasing the project’s visibility.

Exclusive Airdrops

If the novelty’s worn off of your Bored Ape and you’re wondering what’s next for the world’s richest monkey-based high society club, say no more.

One of the more recent use cases for airdrops is as an avenue for developing an existing ecosystem. Something that’s particularly relevant among the emerging swathe of NFT communities. Where storytelling is key to the success of the collection.

 A great recent example of this is the mutant apes NFT drop by the Bored Ape Yacht Club (BAYC). The concept of MAYC was rather interesting: the authors of BAYC announced a total of 20,000 mutant apes, of which 10,000 would be airdropped to current holders of Bored Apes. However, they would not be airdropped as Mutant Apes themselves. 

On 29 August 2021, BAYC completed the snapshot of all wallets holding Bored Apes following which they airdropped 10,000 Mutant Serums to the Bored Ape NFT, which they can use to turn their existing BAYC NFT into a MAYC NFT. 

So, while the airdrop gathered a lot of attention from the press and the crypto community, the other key motive was to develop BAYC’s story. The airdrop also kept the community engaged and MAYC also acted as a means for more members to be a part of the project at a lower tier of membership.

Governance Token Airdrops

Governance Tokens were the buzzword of 2021 thanks to DeFi’s commitment to its core premise of decentralization.

The defining features of a governance token drop are the type of tokens disposable to distribute and why. Governance Tokens go beyond simply being stores of value: they also endow the holder with rights to vote on key decisions for the project. This means that the users can democratically decide how the project is run, and can be responsible for its future. Although the main objective of a governance token drop is decentralization. It generally does also generate a buzz about the project as users discuss the drop on social media.

For example, Uniswap airdropped wallets that used its exchange 400 $UNI tokens based on the snapshot taken on September 1, 2020. At the time, this amounted to over a thousand dollars. That’s a lot to giveaway with no strings attached when you take into account that there were about 12,000 addresses!

Further, Ethereum Name Server (a project that helps to improve the user experience of the Ethereum blockchain by replacing the long and chunky hexadecimal address with a human-readable .eth domain) sought to further democratize its governance and reward its early users by airdropping its native governance token, $ENS.

Another sensational governance token airdrop came from 1Inch where they airdropped 10 million $1INCH tokens through their gas fees refund program. This was to encourage the adoption of their project and take a stance against high gas fees. 

Such airdrops are becoming commonplace as more and more platforms cite decentralizing governance as part of their overall vision. It can help build a foundation for long-term success by engaging users with the project.

How Do I Find Out About Coming Airdrops?

If we’ve learned anything from the last few months, it’s that it’s not always easy to predict an airdrop. For already well-known projects seeking to evolve or decentralize, creators have their own criteria for deciding who will receive tokens. Something that has sometimes caused controversy among users. But with more and more projects citing decentralizing governance as part of their vision. Checking out the road map for projects you’re interested in might at least give a little insight into whether a token drop is on the cards in future.

For new and lesser-known projects with an interest in raising their profile, it’s a different story. A great way of staying abreast is by following crypto projects on their Twitter, Discord, or Telegram. You can keep an eye on the project’s announcements, and chat to the community for information.

A Straight Shot to the NFT Action

And if you’re a beginner, or simply looking for interesting opportunities to buy into a project, websites like NFT Evening are the perfect place to start. Not only giving you an overview of the industry via the biggest news stories, but also listing details of upcoming drops in their NFT Drop Calendar.

But Most Importantly, Always DYOR!

While airdrops are rewarding and fascinating, it is crucial to do your own research. Although blind signing is something of an industry norm for receiving airdrops, it can also be an attack vector by scammers looking to get access to your wallet. So as with any crypto project, make sure you carefully research any project you get involved through its community and even its white paper. And refrain from connecting your wallets on websites promising airdrops without proper research first.

Thanks for Dropping In!

At their core, throughout all their evolutions, airdrops are designed to benefit whatever project they’re related to. Interestingly, they achieve this by providing something that’s also desirable for users. Mimicking the “everyone’s a winner” model that made blockchain so impactful to start with.

Perhaps the real benefit of airdrops becoming an industry norm is that they have brought to fruition an expectation that users like you and me should receive a bigger slice of the rewards from projects we’re supporting – and that’s something that may transcend crypto.

So, go forth and explore the world of new and existing projects via airdrops with an open but critical, questioning, and security-conscious – mind.

Knowledge is Power.

Trust yourself and keep on learning. If you’re interested in governance token drops, and want to know more about what DAOs are and how they are formed, check out our highly entertaining School of Block episode.