The Real Deal Behind Crypto Airdrops
Easy Free Money or Dirty Scams
My friend almost fell for a crypto airdrop scam recently.
The premise was — You send ‘X’ tokens to a wallet address, and you instantly get 5x the amount back. Screams scam, doesn’t it?
The problem is they make it incredibly realistic — the Telegram chat name was the same as the project’s, the member count was high enough, and bots would regularly hype up the giveaway by posting fake screenshots. Genuine user comments (read: complaints) were deleted within a split second.
It was a perfectly set up scam for taking money from people getting their feet wet in crypto. When something seems too good to be true, it probably is. This stands doubly so in the crypto world, especially when someone promises you ‘free crypto’ in the form of airdrops.
Are all crypto airdrops scams?
Well, no. People interacting with the Uniswap DEX during their launch back in September 2020 got a pleasant surprise of 400 $UNI. That’s just over $16K today.
How do you dig up these crypto gems?
It comes down to your ability to distinguish the real from the fake, and we’re here to help you with that.
First, let’s understand the basics.
Why do crypto airdrops exist?
Growth Hacking
There’s always a condition attached to free money. In this case, it is exposure. Airdrops help a project “growth hack” its way into being a top 100 token.
Think of it like this — many tokens (decent ones anyway) usually have a product behind them, such as a content distribution network or a healthcare management system. There is a decent chance another cryptocurrency trying to tackle the same problem also exists. This is where crypto airdrops come in as a marketing tool.
A hypothetical example would be the competition between Ethereum (ETH) and Cardano (ADA). ADA is one of the most popular cryptocurrencies now. Until January, though, it was not that well known.
In this case, an airdrop of ADA could have attracted a vast number of new investors and developers to help them gain ground on Ethereum.
Hard Forks
Airdrops also happen if there is a hard fork in the project’s code and the tokens are incompatible with the previous version. The old chain users need to be transitioned onto the new chain, so devs have to airdrop the new tokens for the community.
Giving Back To The Community
Most crypto tokens support a product. Behind the scenes, beta-testers spend months trying to help the developers identify bugs and launch a full-fledged version of that product. The beta-testers become the most vocal supporters and encourage early adoption. Crypto airdrops help give them a share of the pie and motivate other people to participate as well.
Liquidity
One of the major problems facing new projects is maintaining active trading after being launched. Airdrops help to stimulate that by giving users free money for playing and trading. Once the trading momentum builds, it’s easier to maintain and generate brand loyalty. I’ve seen tokens snowball their growth and spike trading volume the same day as the airdrop.
Whenever you want to bet on a crypto airdrop, always try to tie it to one of these reasons. Then, you’ll have a better chance of finding projects that deliver on their promises.
Types of Airdrops
There are mainly three types of token airdrops:
1. Connection Branding Airdrops:
If you hold X tokens on a specific date, you receive Y tokens of another project on the airdrop day. There might or might not be staking involved.
2. Giveaway Airdrops:
Whoever signs up and whitelists for a project with their wallet address will get tokens. Sometimes, you’re also required to take part in a quiz or fill up a form with your personal information. The most common ones are submitting your email address, sharing it on social media, and so on.
3. Exchange airdrops:
If you do X amount of trading activity on an exchange, you get allocated Y tokens after the token launches. In Uniswap’s case, even failed transactions counted, but that would vary from airdrop to airdrop.
The Most Famous & Successful Airdrops
Uniswap
Uniswap ($UNI) is an example of all the things that could go right in a crypto airdrop. People got 400 free $UNI tokens ($4 each at that time) if they tried to use their wallets before September 2020. Yes, even for a failed transaction. It’s trading at $40 today. Your money basically 10x’d in 9 months. Oh, wait, not your money, your free money.
The airdrop was their method for rewarding their beta-testers and recapturing the DeFi buzz. Even though the price went down during the post-airdrop dump, it shot back up as the project got more exposure. Coinbase, Binance, and OKEx immediately listed it on their exchange, bringing in MASSIVE value for their investors.
During the airdrop, users claimed around $560 million worth of Uniswap. What a great way to give back to the community!
Ripple ($XRP)
$XRP traded at around $0.3 back in November 2020. At the time of writing, $XRP is trading at $1.33. One of the reasons for these huge gains is an airdrop.
The airdrop introduced the token to new investors who saw the potential and helped the project grow. Not just that, XRP even survived a minor backlash from the community in January, around the time Dogecoin was rising. People who invested in XRP through this airdrop had an opportunity to gain profits of over 400%.
1inch
1inch is a DEX, just like Uniswap. While Uniswap rewarded people for interacting on the platform, 1inch mandated that people should have skin in the game. So, anybody who had either $20 in trading or at least four trades got the airdrop.
1inch founders strategically timed their airdrop after raising a $12M funding round from Pantera Capital. That brought a lot of eyeballs on the project, and it has been growing like crazy!
Where do you find Crypto Airdrops?
Follow the noise. If a crypto airdrop is large enough, trust me — people will be talking about it left, right, and center in cryptocurrency groups.
Apart from that, here are a couple of places that list active airdrops:
https://dribbble.com/upcoming_airdrops
Please do your due diligence before participating, or at least use a throwaway wallet!
The Types Of Scams You Need to Look Out For In Airdrops
Scroll down your social media feeds. There’s a reason giveaways are so popular, but they come with a fair amount of associated scams.
A Reddit user recently conducted a random experiment and participated in the first 14 airdrops he saw with a touted value of $2827. Guess how much he got? Yeah, you got that right — $0.
Not only that, he got his (fake) information sold and was sent more scammy offers.
Let’s look at the top scams that you need to watch out for.
Dusting Attacks
If the sender wants to deanonymize crypto airdrop users, they will send the least amount possible then note the wallet ID. They will then monitor various blockchain networks for that ID and perform a series of analyses to identify who you are, not just in the digital world but also in the real one.
This type of attack is called a dusting attack. You have to be careful when sending your wallet address to someone. Ensure that you trust the source or use a throwaway wallet if you want to experiment.
Pump & Dump Schemes
Let’s assume the sender has no interest in deanonymizing you. You still run the risk of an elaborate pump and dump scheme.
Generally, the owners of a cryptocurrency project hold the most tokens since they did invent them. If the token is not doing well in the market and isn’t bringing profits, they may organize a pump and dump scheme through an airdrop.
Many users will receive free tokens in an airdrop, encouraging them to trade. When the users trade these tokens, they may push up the price. The owners can dump all the tokens they’re holding at a certain point, causing a massive dump.
Many projects never recover from the financial toll of a pump and dump scheme. Well, Dogecoin has survived a pump and dump attack, but we all know the tweeters behind it.
Bait & Switch
The bait and switch is basic phishing. You register and voluntarily give your data in exchange for tokens. Well, instead of tokens, be prepared to receive many unsolicited emails from other companies that received your sold data.
Please remember, genuine projects do not usually need you to jump through hoops to get their token. They just want exposure. Only a scammy airdrop will ask for your social security number.
Invest in Airdrops The Right Way
You can’t pick up every airdrop and expect to luck out. Instead, keep an eye out for airdrops that have a strong developer team like Uniswap. Airdrops that give back to the community, like the recent BadgerDAO donation project, are also a good bet.
You have to do some background research on the airdrops. Try to find out if the owners are holding enough tokens to impact the project’s value as a whole.
Staying on alert for any chatter in the Discord, Telegram, or Reddit communities is not a bad way to defend your assets either. However, not everything you hear in the communities is true (like my friend’s case). So, take it with a grain of salt.
You can always use a dedicated wallet for all the airdrops you sign up for and give yourself an added layer of security. Don’t leave any trace of your primary wallet and you’re good!
Happy Crypto Airdrop Hunting!
Written by Lipsa Das
About Grow Events
Grow is a full-stack marketing and incubation service helping crypto start-ups bridge the knowledge gap and communicate with the world. Their team of writers, designers, editors, and marketers operate at the intersection of innovation and storytelling to propel projects to new heights.
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