On the crypto market from 2014 to 2017, the ICO format was used to raise investments for projects: developers issued a token, and early investors bought it for another cryptocurrency or fiat. The teams had to create the products promised to investors that would create value for the issued tokens. However, over the 3 years of its existence, ICOs have proven to be not the best idea due to the large number of scam projects and the lack of guarantees for token holders.
Therefore, since 2017, blockchain startups have begun using a new strategy to enter the market: free or conditionally free distribution of tokens to active users. These giveaways are called airdrops, because the developers "throw" tokens to the chosen wallets based on users activity or their balance.
During the crypto winter of 2018, when retail investors were simply afraid to invest in cryptocurrency projects, drops attracted attention of a new audience more effectively than the ICO approach did.
For the first time, the AuroraCoin project initiated a drop in 2014. The team planned to create an alternative currency for Iceland, and the project is still alive.
Different types of drops
Depending on who and for what the project distributes tokens, there are several types of drops:
- Free-drop: the token is distributed to everyone with certain restrictions on the volume of distribution. To participate in a free-drop, as a rule, you need to leave your wallet address and complete simple tasks, like subscribing to social networks. However, free drops are often used as bait by scammers: users are offered to connect a wallet and get free tokens, but after access is approved, they lose all of their assets.
- Hold-drop: tokens are distributed to users who have other tokens or NFTs in their wallet. The most famous example of such a drop is APE, native token of the YugaLabs ecosystem. After its launch, free tokens were immediately distributed to NFT holders from the BAYC, MAYC and BAKC collections.
- Bounty Drop: In order to stimulate activity and expand the user audience, some projects give out tokens as a reward for completing tasks such as reposts in socials. Trader Joe's Arbitrum Aventure used this concept – all of Trader Joe's partner projects gave out rewards to those who successfully completed quests in Crew3.
- Lock-drop: not a very common type of distribution in which the project's native tokens are distributed among users who have locked their assets in another network. Such blocking of assets is a kind of collateral confirming interest in a new project. And although the owner does not actually risk his assets, by blocking he demonstrates that he is ready to give up receiving income in another way for the sake of the project.
- Retrodrops: a project launches and distributes tokens already having a working or test product. The peculiarity of retrodrops is that the conditions for receiving them are not known in advance. Such projects as Arbitrum (ARB), Aptos (APT), 1inch (1INCH) and Uniswap (UNI) distributed their tokens using this type of drops.
- Fork drops: when cryptocurrency owners receive coins from a network fork. For example, BTC owners received BCH, and ETH holders got ETC.
Why do we need airdrops?
The main benefit a project gets from holding an airdrop is that it is a more effective way to attract a loyal audience than just selling a token to investors and listing it on exchanges. It allows new projects to find the most relevant target audience and draw their attention to a new product with the help of free token distribution.
Token giveaways are also used by developers to enter the competitive market through the so-called "vampire attack". A vampire attack is when a project distributes its tokens to a competitor's community in order to encourage them to use their platform. For example, the NFT marketplace LooksRare — it distributed the native LOOKS tokens to OpenSea users who have made transactions for 3 ETH over the past six months. The trick is that in order to qualify the drop, participants had to list NFT on LooksRare.
For users, the advantages of airdrops are:
- Free Assets. Airdrops allow you to get tokens much cheaper than the price for public investors.
- Opportunity to become part of the community. Native tokens are needed to provide privileges when using a product or managing a project. With airdrop you can become a part of the community and get some bonuses. That is, even if the user does not sell tokens, he will receive indirect benefits for utilizing the product.
- Activity and Loyalty Reward. Loyal users are often willing to support a project simply because they see potential and market value in it. Income is not their main goal, but thanks to the drop, they understand that their efforts have not been unnoticed. Participation in drops means that you’re an active user, and allows you to earn a reputation in the community.
Conclusion
A native token and coins airdrop is a go-to-market strategy that provides the direct distribution of tokens to active users. Drops have replaced ICOs, offering a better solution in terms of risk and distribution of project value. In a bear market, drops remain one of the most effective ways to make money, often surpassing trading and investing in terms of ROI. Professional airdrop hunters can earn even hundreds of thousands dollars by systematically participating in activities from different projects. But be careful and always do good research before making a decision to participate in some project.
Have you ever participated in airdrop? Share your experience in the comments. If you want to learn more interesting facts about crypto then check out our blog! You might like our articles “What Is a Zero-Day Exploit” and “Technologies That Will Shape the Future of WEB3”
