What Is An Airdrop?

By Austin Reihl | Cyberfeed | 7 Mar 2021

In the world of cryptocurrency, an airdrop one of two things. Either it is a type of marketing push that sends coins or tokens to wallet addresses holding already an existing one or to promote awareness of the distributor's cryptocurrency by dropping an allocated amount to a specified list of wallet addresses.


Usually, a small amount of the new cryptocurrency gets sent to the wallets of active users of a specific blockchain community (like the Ethereum network) for free, or in return for a small task, such as retweeting a post sent by the company issuing the currency. 


Other times this is done for the sake of governance - this allows the community to delegate tokens towards community governance initiatives, their % of the total allocation per the weight of how many votes each user has. In this case, these votes translate to the number of tokens held (or staked).


Understanding a Cryptocurrency Airdrop


The airdrop is a promotional activity typically performed by blockchain-based startups to help bootstrap a virtual currency project. The aim is to spread awareness about the project and have users ready to trade it after the initial coin offering (ICO).


Airdrops usually garner widespread attention through promotion across various platforms ranging from the project's website, Twitter and found on cryptocurrency forums or Telegram groups. The coins or tokens are sent only to current holders of crypto wallets, usually Bitcoin (BTC) or Ethereum (ETH).


To qualify for some free tokens, a recipient may need to hold a minimum quantity of the crypto coins in their wallet. Alternatively, they may need to perform a specific task or a list of tasks, like posting about the currency on social media platforms, connecting new members with the community, and sometimes even writing a short blog post.


The Uniswap Airdrop


After many weeks of speculation that the DEX would be releasing a governance token of their own, Uniswap (UNI) released the native UNI token this past September in response to the latest decentralized finance (DeFi) craze.


With the airdrop of their governance token, the now fabled crypto stimulus was an airdrop of 400 UNI tokens, mainly onset by the protocols growing success last year. Below, you will find a more thorough description of what purpose the UNI token is to serve and whether or not it has any utility. An excerpt found on Glassnode describes the following:


"The UNI token is initially launching via a community airdrop and liquidity mine, which started on 18 September 2020. The genesis supply of UNI is 1 billion, which will gradually enter into circulation."


Further, an official announcement by the team at Uniswap on the new UNI token had this to say:


"1 billion UNI have been minted at genesis and will become accessible over four years. The initial four-year allocation is as follows:


  • 60.00% to Uniswap community members [600,000,000 UNI]


  • 21.51% to team members and future employees with 4-year vesting [215,101,000 UNI]


  • 17.80% to investors with 4-year vesting [178,000,000 UNI]


  • .069% to advisors with 4-year vesting [6,899,000 UNI]

A perpetual inflation rate of 2% per year will start after four years, ensuring continued participation and contribution to Uniswap at the expense of passive UNI holders.


With 15 % of tokens already available to be claimed by historical users and liquidity providers, the governance treasury will retain 43% [430,000,000 UNI] of UNI supply to distribute on an ongoing basis through contributor grants, community initiatives, liquidity mining, and other programs."


UNI is now held by more than 50k Ethereum addresses, making it one of the most decentralized tokens in DeFi.


Advantages and Disadvantages of Cryptocurrency Airdrops


Given the extreme competition among cryptocurrency startups, an airdrop attempts to make a project stand out from the crowd. Some businesses devoted to crypto airdrops offer alerts to users and listing services to startups, plus a range of marketing services to fine-tune their airdrops. Despite this, there have been warnings about cryptocurrency airdrops from some individuals in the space.


For example, Pierre Rochard, the founder of Bitcoin Advisory, made a cautionary Tweet stating that crypto-airdrops can sometimes be pump-and-dump schemes, where the creator(s) of the cryptocurrency could be artificially inflating its value to make a quick profit.


Other crypto scams involve sending micro amounts of a cryptocurrency to unsuspecting recipients, known as dusting. Users should always be vigilant about unsolicited deposits into their crypto wallets.


Final Thoughts


Just as with any other industry, there are legitimate companies, and there are ones that are just bad investments. Likewise, there are good and not-so-good crypto airdrops.


DisclaimerWhen dealing with cryptocurrency, safety remains in the hands of you, the user. It is vital to always do-your-own-research (DYOR) before making any financial decisions.

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Austin Reihl
Austin Reihl

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