As you start to dig deeper into the world of blockchain and cryptocurrency, you’ll probably come across the term “airdrop.” But what is an airdrop, and why is it worth paying attention to?
Dipping toes in theory
Simply put, an airdrop is when a company distributes tokens to its users on a given date, usually after meeting a set of requirements. Both the users and the company get something out of this, and it’s often used as a thank-you to a loyal user base.
The key requirement shared by most airdrops is that the users’ holdings must be stored in a secure, online wallet so that they can take a snapshot of their user base. Often, other requirements may include having a certain number of tokens, or doing a small promotional action (sharing something about the company on social media, for example.) The airdrop has a set date and time, and as long as you meet the requirements by that point, you’ll get the tokens sent to your wallet automatically.
Another benefit to the company, beyond encouraging people to use their system and promote their product, is to get an accurate snapshot of the active user base. Often users will keep their balance in off-network storage, or may have it in a public exchange and forget about it. Only active, engaged users will transfer their balance to the online wallet to qualify for the airdrop, so the company gets a good snapshot of the active tokens out there.
There’s a conflicting opinion about whether or not airdrops increase or decrease the value of the currency, though historically increasing a currency’s circulation can de-value it. Airdrops are also not always distributed evenly between users, often preference is given to older accounts or higher balances. Recently, real-estate blockchain company, Relex, held a large airdrop but distributed the tokens equally to all users. The net effect was an increase in value of the token after 550 users received what amounted to $1,000 USD.
The value of a cryptocurrency or token is related to not only supply/demand but also its utility or usability. By increasing the circulation, especially for smaller/newer currencies, the utility of the token can be increased, as well as a desire for the user base to engage with development.
So now that you have a better understanding of what an airdrop is, let’s look at some of the most important recent examples.
Last September, eBTC (an ERC20 compatible version of Bitcoin) distributed 95% of their total circulation in a massive airdrop. On September 30, they distributed 19.5 million equally amongst all the addresses that signed up to participate. At the conclusion of the drop, the coin was trading at about $0.03.
The currency, touted as a combination of the best features of Bitcoin and Ethereum, has faster transaction times than Bitcoin and is compatible with smart contracts. It reached a peak of about $2 before settling back down, and is back at the post airdrop value. The argument can be made that by doing such a large airdrop (as a percentage of total circulation) the long-term viability was impacted.
Justin Sun, CEO of the Tron Foundation who created the TRX coin, recently held one of the largest airdrops ever by distributing over 9 million TRX tokens to users based on a variety of factors. Age of the account, early sign-ups for the airdrop and users getting ‘points’ for different promotional actions all factored into how much each user received.
The total value of the airdrop was around $1.7 million, across about a million users. TRON currently has about $1.5 trillion in market cap at $0.023 per TRX. The company regularly uses airdrops to keep their user base engaged and to promote new features and acquisitions.
The RLX token is a crypto asset designed around real-estate assets, and had an airdrop in June that was a bit different because it distributed the coins evenly among all users. A total dollar value of about $550k was distributed equally to all users, provided they held at least 10,000 RLX.
Immediately following the airdrop, the value of the token’s price rose, and has been fairly stable since then. The theory that CEO Keith Hilden applied is that economic growth is spurred when gains are distributed equally, and it seems to have worked. Ultimately, investors use RLX to fund real estate development projects, and just over a million tokens are in circulation out of the 2-million limit.
Like many startup tokens, eosDAC carried out an airdrop. It was announced that anyone holding at least 100 EOS in their account would get in on the airdrop. In April, they successfully executed the airdrop and market cap surged to $1.4 million.
Unlike an ICO, an airdrop can incentivize more people to participate in a startup. With many platforms trying to get a piece of the same market, airdrops can sway potential users to engage with your company.
A great example of the promotional reach of airdrops, Polymath actually had to increase the number of tokens they were giving away due to an influx of applications to participate. They received over 40K applications, and successfully distributed over 9.5 million tokens to the applicants in January.
Both the value and market cap surged after the airdrop, and it has recently begun another steady climb where others are seeing declines. Uniquely, one of the requirements to participate in the airdrop was for users to complete KYC/AML (Know Your Consumer and Anti Money Laundering) check.
As you can see, there are many different benefits airdrops have for both users and companies. As you research how to get started in the blockchain ecosystem, keep airdrops in mind. Many people just look for ICOs, but a company that can organize a well-engineered and meaningful airdrop is worth getting involved with as well.
Post written by Darya Karatkevich
Darya is a blockchain market observer with 5+ years of experience as an author and editor for major tech blogging platforms. Her fortes are blockchain technologies and solutions, cryptocurrencies and crypto-related regulations.
Very interesting!Very interesting, thanks for sharing.Thanks for the tip!