Author: 3HOUSE user @Jdarrwr

Airdrops have become an extremely popular marketing strategy for blockchain projects since the initial token offering days of 2017 and many are still using them as a promotional strategy today.

“Growth strategies like Airdrop and Influencer Marketing are going to be the new era in the promotion of Crypto-based services. They have the power to increase brand awareness, create liquidity, and help reach more investors.”

The quote above by marketing expert BalamuralieIt perfectly encapsulates the power of Airdrop marketing. It is deployed to increase awareness for a specific cryptocurrency project and free tokens are used as a strategy to onboard and reward users for engaging with the project prior to its official launch.

Crypto Airdrop - what is it?

Crypto Airdrop is a transfer of cryptocurrency by the projects into users’ wallets for free or in exchange for performing some prescribed tasks. These tasks generally relate to activities that help promote the project such as sharing information on social media, writing a blog post, referring other users to support the project, interacting with the product prior to launch, etc. These Airdrops do not normally require any capital investment on the part of the participants.

Airdrops could be utility tokens that serve as currency for holders to interact within the project’s blockchain ecosystem or governance tokens that carry voting rights to enable holders to decide the project’s future developments.

Types of Airdrops

Standard Airdrop

Standard Airdrops are tokens given to users as a reward for subscribing to the newsletter of the project or signing up as an early adopter of the blockchain project. This is the easiest way of earning free Airdrops.

Bounty Airdrop

Bounty airdrop is a strategy used by projects to recruit users as “marketers” of their projects. In this strategy, users are required to promote the project on social media platform such as Twitter, Instagram, LinkedIn etc to “recruit” more users through their network of friends and families. The users are then rewarded with free Airdrops depending on the number of tasks they completed.

Exclusive Airdrop

Exclusive airdrop is a popular strategy adopted by projects to reward loyal early adopters of their products prior to token launch. In order to qualify, projects usually require users to fulfill certain criteria such as moving cryptocurrency into its ecosystem, trading and interacting with dApps on its network. A recent example of this is the Arbitrum airdrop.

Holder Airdrop

These types of Airdrops are usually deployed by projects built on top of a Layer 1 blockchain such as Bitcoin to attract the bigger community to interact with their new products. Holders of the Layer 1 token will automatically received these free tokens given by the new projects as an incentive to test their products.

Hard Fork Airdrop

A hard fork airdrop happens when the blockchain protocol “splits” into two. As a result, the project will issue an equivalent amount of the new chain’s tokens to existing token holders for them to use in the new chain.

Beauty parade for the projects

Why do projects use Airdrops?

• Low-cost marketing - what is more appealing to the users than something that is free and has the potential of making huge profits? Airdrop is a fantastic low-cost marketing strategy for projects to promote their products by tying the users to the success of their projects. With Airdrops, the economic interests of both the projects and token holders are aligned to ensure a successful product launch and adoption. Token holders become proud advocates and ambassadors of the project and voluntarily promote awareness of the project through social media and community events.

• User acquisition - the biggest challenge for any startup business is user acquisition and airdrop is one of the most cost-effective methods to achieve this. As early adopters of the product, they tend to be more loyal and more willing to influence their network of friends to support the project.

• Attract investments - investment analysis of new crypto projects are usually determined by the number of followers and activities on social media channels (eg: number of Discord members, Twitter followers, Telegram channel member count etc). By allocating a portion of the project’s token supply to Airdrops, this can boost the number of active users and followers of the project, hence increasing the interest of institutional investors to invest into the project.

• Promote user loyalty - crypto investors are notorious for being short-term traders where they are constantly in search of tokens that can give them the highest yield and dump them in a blink of an eye when they underperform. In order to buffer the impact of short-term traders, Airdrops are a useful strategy to reward token holders for their loyalty especially when staking is a criteria for users to qualify for an airdrop.

• KYC (Know Your Community) - airdrop is an effective way for projects to learn more about their community members and who their supporters are. This information will help improve the effectiveness of the project’s future marketing campaigns and activities in engaging their community members.

• Increase token value - we have seen how Airdrops can increase user adoption, brand awareness and attract investors’ interests. These factors combined will drive up the token value and valuation of the project.

Managing Airdrops - potential pitfalls

Running a successful airdrop campaign could make or break the reputation of a project. It’s not as easy as managing a distribution list via Google Sheet or press “send” to drop free tokens into user wallets. Many things could go wrong during the airdrop event and there are the common challenges that project owners need to be aware of:

• Fair and square - the biggest gripe that users have is when they did not receive or received less tokens than what they expected. This happens when the eligibility rules are not clearly defined or user verification processed incorrectly.

• Scammers: as with anything that is popular, Airdrops is another way for hackers to trick eligible recipients into claiming tokens from spoof Twitter, Discord and Telegram accounts and fake websites. Scammers will induce users to connect their wallet, reveal their seed phrases and drain their wallets. Even though the scammers are not affiliated with the projects, these fraudulent acts can give the project a bad name.

• Technical issues: this is a typical issue faced by projects when executing the airdrop. It is expected that many users will rush to claim their Airdrops as soon as possible and this causes network congestion issues, high gas fees and delay in the airdrop distribution. Server outages and website crashes are common and as a result, frustrated users will start accusing the project to be a “scam”, complain about their poor experience and tarnish the reputation of the project.

• Regulatory compliance: with increasing regulatory scrutiny on cryptocurrency, projects need to be aware of any potential regulatory issues when dealing with Airdrops. Users from jurisdictions with strict legal requirements may need to be excluded from Airdrops to avoid potential legal and tax liabilities. In the U.S. any tokens that create an expectation of profits could be classified as securities, therefore they will need to be regulated as such..

• Fraudsters: Airdrops will naturally have bad actors looking to game the system by claiming more airdrop tokens than they are entitled. There is no foolproof way to avoid these unscrupulous actors but projects need to anticipate these risks ahead and do their best to mitigate them.

• Cost controls: projects need to calculate the cost of distributing the airdrop based on the number of tokens and recipients to ensure the exercise does not go beyond the projected budget.

Lessons for future Airdrops

As we have seen from the above, managing a successful airdrop campaign can be a tricky business. A well-intentioned initiative could easily be sabotaged by the acts of some bad actors and ruin the efforts and reputation of a good project.

The recent Arbitrum airdrop adopts the popular pull-style methodology, where qualified recipients need to claim the free tokens. Although Arbitrum saved on gas fees, it created an on-chain disaster as claimants paralyzed the network, causing severe delay issues and astronomical gas fees for the claimant. For projects with a large number of claimants, it is best to use the push approach, where the tokens are dropped into the recipient’s wallet without causing network congestion.

The distribution methods of Airdrops are still going through an experimental phase and there is no one-size fits all. The key focus for projects is to ensure that the airdrop campaign fulfills the purposes described above and take precautionary steps to mitigate expected issues to create a seamless user experience.

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