Term

Airdrop

A strategic distribution of complimentary tokens to stimulate interest and engagement in a cryptocurrency asset.

Type:
distribution
marketing
tokenomics
1
noun

An Airdrop refers to the strategic distribution of tokens or coins directly into the digital wallets of users. The quantity distributed to each recipient is typically determined by the type of airdrop and may be based on the user's asset holdings at a specific time or block height, participation in the project, or other qualifying criteria.

Airdrops serve as a powerful tool to foster adoption, generate interest in a cryptocurrency asset, reward early supporters, distribute governance rights, or to distribute dividends as a reward for holding a particular cryptocurrency asset. They can also create broader token distribution and decentralization, helping to avoid regulatory concerns about concentrated ownership.

Exchange Airdrop

In an exchange airdrop, assets are distributed to each user's account based on their holdings on the exchange at a given time. Users typically need to hold their funds on the participating exchange at the specified block height or over the specified time period. The amount distributed to each address usually correlates with the total ownership the address has during the time period. For example, when Binance supported the Stellar (XLM) airdrop in 2018, users received XLM proportional to their Bitcoin holdings on the platform.

Wallet Airdrop

For instance, on September 4, 2017, all ETH holders were airdropped OMG tokens. The distribution was based on 5% of the total ETH supply, divided by each wallet's ETH holdings. The OMG tokens were automatically distributed to each ETH address. However, ETH holders who stored their assets on an exchange did not receive any OMG tokens, as they did not control their private keys to receive them - a reminder of the importance of controlling your own private keys. This airdrop was a pioneering example of the "snapshot" method that many projects have since adopted.

Governance Airdrop

In 2020, Uniswap distributed 400 UNI tokens to each wallet that had used the protocol before a specified date. This airdrop instantly granted users governance rights in the protocol, allowing them to participate in decision-making. With UNI trading at around $3 at launch, each eligible user received approximately $1,200 worth of tokens. This remains one of the most significant retroactive airdrops in crypto history, with some early users receiving assets worth tens of thousands of dollars at peak prices.

2
noun

Airdrops can be categorized into several types based on their distribution mechanism and requirements:

Standard Airdrops: Tokens are distributed to existing holders of a specific cryptocurrency. These typically require holding a minimum amount of a particular token in a non-custodial wallet at the time of a snapshot. Projects often announce snapshot dates in advance, though some perform "surprise" snapshots to prevent users from temporarily acquiring tokens just to qualify.

Bounty Airdrops: Tokens are given as rewards for completing specific tasks such as social media engagement, referrals, or community participation. These tasks might include following social media accounts, sharing posts, joining Telegram groups, or creating content that promotes the project. This approach helps projects build community and increase visibility.

Holder Airdrops: Tokens are distributed proportionally to individuals based on their holdings of a specific token. For example, holders of 1% of the total circulating supply might receive 1% of the airdropped tokens, creating alignment between existing investment and new token allocation.

Fork Airdrops: When a blockchain undergoes a hard fork, holders of the original cryptocurrency may receive an equivalent amount of the new forked token. Bitcoin Cash (BCH), Bitcoin Gold (BTG), and Bitcoin SV (BSV) were all distributed to Bitcoin holders through fork airdrops, based on their BTC holdings at specific block heights.

Exclusive Airdrops: Tokens are distributed to a select group of users who meet specific criteria, such as early supporters or strategic partners. These targeted airdrops often serve to reward key community members or incentivize specific behaviors.

Retroactive Airdrops: Tokens are distributed to users who engaged with a protocol or project before the token existed. This approach rewards early adopters and users who supported the project before there was a financial incentive to do so.

3
noun

While airdrops can provide benefits, they also present various considerations and risks:

Security Risks: Scammers frequently use fake airdrops to collect private keys or personal information. Users should never share private keys or seed phrases to claim an airdrop. Legitimate airdrops never require revealing sensitive wallet information; they simply send tokens to your public address or implement a secure claiming mechanism.

Tax Implications: In many jurisdictions, receiving airdrops may be considered taxable income. Recipients should consult with tax professionals regarding their obligations. The value of tokens at the time of receipt or claim (not distribution) is often considered the cost basis for tax purposes in countries like the United States.

Wallet Compatibility: Some airdrops require specific wallet types for eligibility or claiming. Recipients should verify wallet compatibility before participating. Hardware wallets may require additional steps to view or access airdropped tokens.

Market Impact: Large-scale airdrops can temporarily influence market prices if recipients immediately sell their tokens. This "airdrop dumping" phenomenon often creates significant price volatility in the days following major airdrops.

"Dust Attacks": Some malicious airdrops are designed to track user behavior or compromise wallet security through small, unwanted token deposits. These tokens might contain malicious smart contract code that could compromise wallet security if the recipient attempts to interact with them.

Claim Requirements: Some airdrops require users to pay transaction fees or interact with smart contracts to claim tokens. These requirements can create barriers for smaller holders if fees are substantial relative to the airdrop value.

4
historical-context

The practice of airdrops evolved significantly throughout cryptocurrency history:

Early Airdrops (2014-2016): Primarily used as marketing tools by smaller projects to build awareness, with limited strategic considerations.

ICO Era (2017-2018): Airdrops became common for distributing tokens alongside Initial Coin Offerings, often to attract users who missed ICO participation.

DeFi Revolution (2020-2021): Retroactive airdrops gained popularity as governance tokens emerged, with protocols like Uniswap, 1inch, and dYdX rewarding early users with substantial token allocations.

L2 Ecosystem Development (2021-Present): Layer 2 solutions and network-specific protocols adopted airdrops to bootstrap activity and incentivize users to try new scaling solutions.

The evolution of airdrops reflects the maturing cryptocurrency ecosystem, with projects increasingly using them as sophisticated tools for community building, protocol governance, and ecosystem development rather than mere marketing gimmicks.

All terms and definitions may update as the Cryptionary improves.