This article aims to provide an overview of airdrops within decentralized finance (DeFi) and non-fungible token (NFT) communities. If you are unfamiliar with these concepts, do consider reading our introduction to DeFi, NFTs, crypto, and tokenomics first.

What Does It Mean to Receive an Airdrop?

An airdrop refers to an event where a DeFi project or protocol gives out crypto tokens. Typically, the “airdropped” token is native to the project and given to a specific group of users within the project’s community. The value of an airdrop token varies, ranging from a few cents to thousands of dollars, depending on the “hype” and publicity of the project.

How Are Airdrops Conducted?

Airdrops are normally conducted in two ways:

Transferred directly into user wallets
Users need to claim their airdrop from the project’s website

Generally, the project will disclose the eligibility criteria when an airdrop is announced. Then, users will connect their wallets to the project site to check if they are eligible for the airdrop. If users satisfy the requirements, the tokens or NFTs may be transferred directly to the registered wallet or users might have to claim them via the website, which usually involves a one-time gas fee.

Why Would Anyone Give Out Free Money?

There are two main reasons for airdrops:

To create awareness
To reward the community

Due to the competitive nature of crypto startups, airdrops are a good way to stand out. Some projects, especially newer ones, distribute tokens through airdrops to users who have made a minimum number of transactions on their platform to promote visibility and awareness. On the other hand, some projects conduct retroactive airdrops to reward early adopters, incentivizing users to remain and participate in the community to help to create a more loyal user base.

The Downside to Airdrops

While airdrops are an extremely popular and successful marketing tool in the crypto space, they come with their own drawbacks.

Poor User Retention

Many projects use airdrops as a means to generate hype. Most of the time, the hype will die down, and the token’s value will reach a sell-off point. At this point, it is common to witness a decline in the size of the user base. This is because users who are not committed to the project, and are only looking to profit from flipping the tokens, will leave the project.

Security Concerns

Security concerns, such as scams, contribute to the poor reputation of the crypto space. Considering this risk, users should always do your own research (DYOR) before interacting or participating in any airdrops.

Phishing and Scams

While airdrops sound great, they present an opportunity for scammers to attack unsuspecting victims. A popular scam is the “connect your wallet” airdrop scheme. This is where a scam site invites users to connect their wallets and approve specific transactions leading to wallet hacks. Aside from that, scammers often mask themselves as community members in Discord or Telegram groups to connect and scam new members. An example would be that in April 2022, the Bored Ape Yacht Club (BAYC) Otherside discord servers got hacked. The hackers sent out phishing links to the BAYC Otherside community channel, stealing 179 ETH worth of assets.

Pump-And-Dump Schemes

There are also instances where malicious users create an airdrop in a pump-and-dump scheme. Sometimes, this involves capitalizing on influencers to promote and “pump” the token before they “dump” their crypto share right after retail investors buy in. An example would be Kim Kardashian being fined US$1.2M by The Securities and Exchange Commission (SEC) for promoting EthereumMax, a cryptocurrency asset, on Instagram. She was held liable as she did not disclose that she received US$250K as payment for the promotional post.

What Are Some Examples of Airdrops?

UNI Airdrop

The first airdrop that made headlines was the Uniswap airdrop in 2020, where UNI tokens were airdropped to over 250,000 Ethereum wallets. This made UNI one of the most widely held tokens at that time. Each wallet received 400 UNI, which was worth around US$1K.

BAYC NFT Airdrop

Some projects establish an entire series of airdrops, especially for loyal or long-time users. One prominent example would be the BAYC airdrops. To date, BAYC NFT holders who have held since mint would have received several valuable airdrops in the form of both NFTs and tokens. The first airdrop to BAYC holders was NFTs from the Bored Ape Kennel Club collection on 18 June 2021. Following that was an airdrop of Mutant Ape Yacht Club serums on 29 August 2021, ApeCoin on 17 March 2022, and two The Otherside land NFTs on 30 April 2022. The cumulative value of all these airdrops reached an all-time high of US$400K (as of 21 September 2022).

“Wen Token? Wen Airdrop?”

“Wen token?” is crypto slang for “when will the token be out?” This is a common comment on community platforms and crypto Twitter. Users who participate in DeFi or NFTs can look forward to airdrops for upcoming and existing projects. Apart from the potential yield and rewards, it is a fun way to get involved and connected in the projects and their communities. Make sure to get updates from all the protocols and communities you are a part of, and hang tight for an airdrop!

Disclaimer

This publication is provided for informational and entertainment purposes only. Nothing contained in this publication constitutes financial advice, trading advice, or any other advice, nor does it constitute an offer to buy or sell securities or any other assets or participate in any particular trading strategy. This publication does not take into account your personal investment objectives, financial situation, or needs. Treehouse does not warrant that the information provided in this publication is up to date or accurate.

Treehouse APIs provide you with DeFi analytics and comprehensive current and historical portfolio data to meet your monitoring, trading, and reporting needs. Contact us if you are interested! Otherwise, check out Treehouse Academy, Insights, and Treehouse Daily for in-depth research.

What You Need to Know About Airdrops in DeFi

Authors: @0xshyu and @JiaHo

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