Crypto airdrops are a way of distributing new cryptocurrency tokens to existing or potential users for free or in exchange for some simple tasks. This is usually done by new projects that want to raise awareness, build communities, and (or) existing projects that want to reward their loyal supporters, introduce new features, or increase the circulation of their tokens.

Airdrop farming has become a very lucrative source of income for many active “farmers” as some have been able to earn hundreds and thousands of dollars by just hunting and participating in these airdrops. On the other hand, crypto projects have been able to gain traction, and product feedback, build their communities, and market their products at minimal cost. Some of these airdrops have been massive and life-changing, while some others have come in trickles or close to being worthwhile, given the number of tasks carried out by participants expecting some drops. This has led to the claim that most projects now utilize the airdrop strategy to exploit users, “farming the farmers”.

Airdrops come in different forms, such instances are Arkham airdropping its tokens to early adopters who performed a simple task of signing up on their platform and TON blockchain requiring users to scan a QR code and earn Toncoin worth $50,000 to onboard users into web3 via @wallet (an in-built crypto wallet in telegram). We’ll be looking at the different types of crypto airdrops, depending on the criteria and the process of distribution, with some examples;

Holder airdrops

These are airdrops that distribute crypto, NFTs or some other digital asset to the holders of a specific over a period of time, based on their proportional stake or activity. Most projects embark on this approach to increase the number of users holding their tokens or reward loyal community members who have been supportive of the project during unfavorable times and circumstances. Evmos, a PoS EVM-compactible blockchain built on Cosmos airdropped its native token to Cosmos and Osmosis users (ATOM and Osmo holders).

Snapshot airdrops

These are airdrops that take a snapshot of the blockchain at a certain point in time (Block height, timestamp, event, etc) and distribute tokens to the holders of a specific crypto based on their balance at that time. In most cases, claiming snapshot airdrops usually require users to sign a message with their private keys or connect their wallets to a claim website. The structure of snapshot airdrops is usually fixed and predetermined, that is, the amount of tokens and the eligible addresses are known in advance. An example, Uniswap airdropped 400 UNI tokens (its native token) to every address that interacted with its protocol before September 1, 2020.

Image: uniswap.org

Retroactive airdrops

In March 2023, Arbitrum airdropped 11.62% of ARB tokens to users who interacted with its layer 2 scaling solution, the snapshot was taken on 6 February 2023 at block height 58642080. Retroactive airdrops have a lot of similarities with the snapshot airdrops. However, tokens are distributed to users who have used the project’s platform, tools, or services in the past (mainnet or testnet), before the airdrop is announced. To claim retroactive airdrops, users usually need to claim their tokens from the airdrop project or a supporting exchange.

The structure of retroactive airdrops is usually based on a snapshot of the protocol’s on-chain activity. This means that the number of tokens and the eligible addresses are determined by the historical data.

Bounty airdrops

These are airdrops that distribute tokens to users who complete certain tasks, such as joining a Telegram group, following a Twitter account, sharing a post, or referring a friend. To claim bounty airdrops, users usually need to submit their details via a form or bot or some proof of work tools like Zealy, Galxe, etc. The structure of bounty airdrops is usually flexible in the sense that the number of tokens to be distributed and the eligible tasks for participants may vary depending on the airdrop project and the user preferences, (in)ability to complete these set tasks.

Exclusive airdrops

These are airdrops that distribute tokens to users who meet certain criteria, such as being a member of a community, a user of a platform, or a participant in an event. To claim exclusive airdrops, users usually need to verify their identity or eligibility with the airdrop project. The structure of exclusive airdrops is usually selective and targeted and designed to reward specific users or communities. The launch of its governance token, GTC token by Gitcoin is a notable airdrop in this category. 50% and 35% of 100 million GTC tokens were allocated to Gitcoin DAO and existing stakeholders with the remaining 15% being retroactive.

Crypto airdrops can offer various benefits to both the projects and the users. For the projects, crypto airdrops can help them:

Gain exposure and attention in the crowded and competitive crypto space
Attract and engage new users and potential customers to their products or services
Create a network effect and a positive feedback loop for their tokens
Distribute their tokens in a fair and decentralized manner
Test their products or features and collect feedback from the users

For the users, crypto airdrops offer an opportunity to;

Discover and learn about new and interesting projects in the crypto space
Support the projects that they believe in or align with their values
Participate in the governance and decision-making of the projects
Learn how to perform some DeFi activities like staking, providing liquidity, etc, without having to invest their real funds (in the case of testnets)

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However, crypto airdrops also come with some risks and challenges that both the projects and the users should be aware of. For the projects, crypto airdrops can:

Dilute the value and the scarcity of their tokens
Attract users who are only interested in the free tokens and not the long-term vision of the project
Face regulatory uncertainty and compliance issues in different jurisdictions
Encounter technical difficulties or security breaches during the distribution process
Receive negative feedback or criticism from the users or the community

The risks are not limited to projects only as users have a fair share of challenges which include:

Exposure to scams or phishing attempts that try to steal their personal information or funds
Performing tasks that may compromise user privacy or security
Getting worthless or useless tokens that have no value or utility.

Airdrops can be very important for both users and projects if both parties can weigh the pros and cons carefully, and carry out adequate research and due diligence carefully. Crypto airdrops can be a great way to distribute and acquire new tokens, onboard new members, and cheaper marketing but they are not without risks and challenges.