In this week’s edition of ‘The Cortex Connection’ we dive into the fundamentals of airdrops, their purpose, their benefits, and how to -safely- research and potentially qualify for future drops.
What is an Airdrop?
An airdrop is a distribution technique employed by blockchain projects to distribute tokens to a broad audience. Unlike traditional ICOs (Initial Coin Offerings) or IDOs (Initial DEX Offerings) where tokens are sold, airdrops essentially involve freely distributing tokens directly to the user. This strategy aims to attract attention, build a vibrant community, and create widespread token distribution.
The Purpose of Airdrops
Airdrops serve multiple purposes within the crypto and DeFi ecosystems:
Network Adoption
With the potential to earn airdrop allocations, users are incentivized to explore a project platform, test functionalities, and potentially become active users.
This method has been recently most common among emerging L1 and L2 blockchain projects that are looking to reward early adopters who participate in testing phases, and ultimately to help attract liquidity into their ecosystems once live. Aptos, Optimism, and Arbitrum are the most recent examples of this type of airdrop.
Token Distribution
Airdrops can be an effective way to distribute tokens broadly with the goal of moving toward a more decentralized ownership structure and preventing token concentration.
A common way for projects looking to decentralize governance of their platforms. New projects built on the Cosmos SDK are well known for rewarding ATOM (the base token for the Cosmos ecosystem) holders and stakers with token allocations. Osmosis, the largest decentralized exchange built on Cosmos, distributed 50 million OSMO tokens to ATOM holders with a bonus to ATOM stakers.
Marketing and Awareness
Airdrops create buzz around a project, attracting attention from both existing and new market participants. It can be a cost-effective way to gain visibility in a crowded market.
Whether a primary focus or an obvious side-effect, when a project gives away free assets, people tend to pay attention no matter the market conditions. In many cases, even unconfirmed rumors of airdrops can create attention around a project.
Community Building
Airdrops can be a helpful way to engage and grow a project's community by incentivizing users to join their social media channels, subscribe to newsletters, participate in community activities, or even generate content to be shared around the crypto community.
It’s not uncommon for projects to give airdrop recipients additional allocations in exchange for social participation to spread the word.
One of the first airdrops occurred in 2014 by a project named Auroracoin which was designed to be the national cryptocurrency of Iceland. The initial distribution used Iceland’s national identification database to distribute 50% of the total supply. Unfortunately, many recipients immediately sold their allocations, causing the price to dramatically drop in value and eventual loss of confidence in the project.
Types of Airdrops
Airdrops come in various forms, each with their own unique characteristics:
Classic Airdrops
These involve sending tokens directly to eligible wallets based on specific criteria, such as holding a particular cryptocurrency or having a minimum balance. Initially, it was common for there to be no additional user action required to claim however, it is becoming more common for platforms to require users to connect their wallets and interact with a smart contract in order to claim their allocations. Uniswap distributed 400 UNI tokens per claim using this method.
Bounty Airdrops
Users perform specific tasks like sharing content on social media, writing articles, or translating materials to earn additional airdrop allocations.
Fork Airdrops
Existing token holders might receive a new token on the forked chain when a blockchain undergoes a hard fork. Some notable examples are Bitcoin Cash (BCH) being distributed to BTC holders and ETHPoW being distributed to ETH holders.
Key Considerations
Participating in airdrops can be exciting, but it's crucial to approach them with diligence and caution:
Be cautious of scams and phishing attempts. Never share your private keys or personal information to participate in an airdrop.
Only engage with well-established and reputable projects. Research the project's team, mission, and community to ensure it's genuine.
Be careful on social media sites like X (Twitter) where it is common to find fake accounts sharing malicious links designed only to steal access to your wallet. Check follower count and see if other reputable accounts are following these projects. Walk, don’t run, to click on links without proper research.
Ensure you have compatible wallets to receive airdropped tokens. Popular choices include MetaMask, Trust Wallet, and Ledger.
While centralized exchanges may participate in airdrops, they don’t support them all, and sometimes have additional criteria that may delay or even disqualify you from receiving your allocation.
For maximum security, create a fresh wallet for each airdrop you participate in. This may be a tedious extra step, but it will ensure that you are not risking your entire portfolio for each airdrop interaction. Remember, as we identified in previous publications, smart contracts you have given access to maintain a risk of being compromised. Separate wallets help contain issues should they arise.
Note any tax or legal implications, making sure that you consult your financial advisor or tax professional when participating and receiving airdrops.
How to Track and Participate in Airdrops
Keeping in mind the considerations above, the best way to qualify for potential airdrops is to use the targeted platform’s tools, services, or testnet environments. Many airdrop qualifications are not announced in advance in order to ensure that most recipients are real users that spent some time interacting with the project and have a higher likelihood of continuing to use the platform before or in lieu of simply selling the tokens for profit.
Besides blindly using the platforms of interest, you can stay up to date on active and speculative airdrop requirements in the following ways:
Follow trusted X (Twitter) accounts that have a history of providing credible research and are followed by prominent users. Be wary of accounts with few followers and limited engagement in their feeds. Here are some accounts that have proven to have some relevance in this regard (though please, as noted above, do your own research):
@AndrewTalksDefi posted a thread of potential airdrops as well as a list of actions on how to attempt to qualify for them.
@KashKysh also frequently posts speculative airdrop information and is followed by some larger accounts.
@0x_Gremlin recently posted a thread covering A16z (Andreessen Horowitz) funded projects that may have upcoming airdrops.
@Cosmos_Airdrops provides information on exactly that - Cosmos ecosystem airdrops. The account is followed by several prominent Cosmos project accounts as well as Cosmos content creators. Often, Cosmos projects simply require you to stake ATOM to qualify.
You’ll also find that many of these researchers cross-link their threads with other researchers worth following. Be sure to -dilligently- read through information proided through the linked accounts.
Browse respected airdrop aggregators but use caution when clicking through to outside links. One extra security measure here is to do outside research via Google on the protocol in question. Get familiar with the project team, find their website and socials, and confirm that you are interacting with the official platforms. Use the aggregators for information about the airdrop aswell as the steps to try and qualify, staying cautious about clicking through to outside links.
AirDrops.io provides several sections for active airdrops as well as upcoming airdrops. Each page is well detailed and updated to show the steps for confirmed and potential airdrop qualifications alike.
Reddit /r/CosmosAirdrops/ is not affiliated with the Twitter account, but does have regular information about airdrops in the Cosmos ecosystem. Be sure to only interact with posts that have lots of user engagement via relevant comments. Low comment count and engagement = be extremely wary.
Final Thoughts
Airdrops can provide a ton of opportunity not just in dollar value, but value in experiencing what it’s like being an early adopter of the new protocols shaping the future of DeFi. As has been stressed many times in this article, please use caution in this endeavor. If you are not comfortable with managing the risks, getting a little technical with the participation requirements, and being consistent with staying secure in your research - please avoid it. Better safe than sorry. However, if you found the information here useful and your curiosity is sparked, enjoy your journey! It’s quite exciting once you get the hang of it.
Of course…the disclaimer: This newsletter is for informational purposes only and does not constitute financial or investment advice. Always conduct your own research before participating in any airdrop or token giveaway.
To Our Friends At Curve Finance
We wish the entire Curve Finance development team and community well as your various teams work through the latest events. Much respect for staying on top of communicating with the community via your Discord and socials, dispelling misinformation, successfully stress testing crvUSD in the face of fundamentals, and providing regular updates as all eyes are on the protocol. It surely has been a wild week. Stay strong as the community rallies around you.
That’s all for now! We’ll see you in the next one.