Soul woke up on Christmas day with a pleasant surprise. It wasn’t an unexpected gift in her Christmas stocking, but rather an unlikely notice on her phone. A new cryptocurrency had been launched and he was eligible to request some for free.
It looks like a scam, no more sophisticated than an email from an alleged Nigerian prince. But it wasn’t. Soul, a recreational trader in his thirties who didn’t offer his real name, pressed “claim”, paid a transaction fee, and watched $ 2,000 worth of tokens flow into his wallet.
In the bewildering world of cryptocurrencies, this is called an airdrop. They are not as rare as you might think.
Many traditional companies raise funds by going public and offering shares to the public. Organizations that operate on, the internet integrated into the blockchain, follows a similar path by launching a token that people can buy and sell on the stock exchange. Some of these token launches are accompanied by air launches. If you have used the tool provided by the Web3 organization, you get a lot of tokens placed in your wallet. Imagine if Adobe went public and, to raise awareness, sent 100 actions to anyone who had used Photoshop in the past 12 months.
“Airdrops can be seen as customer acquisition costs,” explained Alex Gedevani of research firm Delphi Digital. Their usefulness is twofold. First, they act as marketers. Nothing grabs attention like the prospect of free money. Second, it has become a label for blockchain apps to airdrop when listing a token. Bettors then experiment with new apps with the knowledge that if the app is successful, a profitable airdrop is likely in the future.
“It gets me super excited about Web3,” said Soul, who has been trading as a hobby since 2020. “Airdrops incentivize you to put your toes in everything.”
The company behind the Christmas Day airdrop is called OpenDAO. Anyone who bought or sold on OpenSea, the largest NFT marketplace, could apply for OpenDAO’s $ SOS tokens. As of January 12, 300,000 wallets have claimed the airdrop. (Unusually for an airdrop, OpenDAO is not officially associated with OpenSea. The purpose of OpenDAO is to support traders in ways that OpenSea doesn’t, but that’s another story altogether.)
The more money users spent on OpenSea, the more airdrop they could receive. Anyone who supported the airdrop would see a Spotify Wrapped Infographics detailing their NFT trading data from 2021. Soul had spent $ 25,000 on NFTs via OpenSea, which put him in the top 6%.
The airdrops received by the top 1% border on the obscene. Cryptocurrencies posted their infographic on Twitter, bragging about air launches worth tens of thousands of dollars. Several traders had bought so many NFTs and spent so much on Ethereum’s notoriously expensive transaction fees, that they were able to claim $ 140,000 worth of SOS $.
OpenDAO became the new hot token, with $ 650 million of SOS $ traded on December 26th. It now has a market capitalization of $ 312 million, has been listed on several major exchanges, and is among the largest DAOs on the market. (The DAOs are, which work by issuing tokens that double as voting rights – the token owners then vote on how the DAO’s treasury is spent.)
If there is one thing that can be counted on in cryptocurrency, it is that success is immediately imitated by others. OpenDAO attracted a tremendous amount of attention and airdrops have been flowing ever since.
Here come the drops
Airdrops are not anomalies, but are usually spread over a period of months. Before Christmas, the latest big hit came in November courtesy of the Ethereum Name Service, a tool that allows users to change their wallet number to a wallet name, such as Daniel.eth. Since Christmas, however, there has been a flurry of air launches that have tried to mimic the success of OpenDao. The first was GasDAO, where traders were issued tokens based on how much they had spent on Ethereum transaction fees. Soul’s airdrop was worth $ 1,300. Others have much more.
“How I earned over $ 250,000 in the NFT space in December, an analysis of the unique opportunities in this space”, a prolific trader tweeted. “I have claimed $ SOS and $ GAS.”
Looks Rare followed on Monday 10 January. It is an NFT market that hopes to compete with OpenSea and has issued an airdrop to raise awareness. Anyone who bought or sold an NFT in 2021 can apply for $ LOOKS tokens Self list an NFT on the Looks Rare platform. The lowest level of airdrop was worth $ 400, although the most active traders received a lot more.
Then came fee.wtf, Thursday 13th January, an analytics tool that shows traders how much money they have spent on transaction fees. The airdrop is designed to advertise an analytics dashboard tool that fee.wtf will be launching soon.
Yet all airdrops are not created equal. The intended purpose is to get people not to sell their tokens, but to keep them and buy more. Some tokens become more valuable over time, while others fade into obscurity. Looks Rare tokens doubled in value since Monday’s airdrop, while $ GAS tokens held their value for a couple of days before most of the airdrops became worthless.
“After the success of OpenDAO, many people have copied,” the creator of OpenDAO 9x9x9 told me. “But they use the success of OpenDAO to raise money for themselves.”
9x9x9, which declined to be named, says airdrops are often used to enrich founders. A team will reserve the tokens for itself, launch an airdrop to create hype, and then sell the reserved tokens at a high level. He didn’t name the airdrops he was referring to, but he boasts that OpenDao is a passion project and that no tokens have been reserved for the team.
As always in cryptocurrencies, however, there are risks and scams. A flaw in the fee.wtf smart contract caused the token price to plummet in less than an hour, a disaster for early investors. The appeal of free tokens is strong, and shady developers can take advantage of them by creating unreliable smart contracts that can drain funds from the wallet that claims the airdrop.
“Always question any form of free money received in cryptocurrencies,” said Gedevani of Delphi. “Airdrops from public-facing teams can easily be identified as legitimate, but in the past there have been some with malicious intent, mostly from unknown sources, which have led to the loss of user funds.”
Soul is ambivalent about risk and is instead eager to keep the money flowing. “These airdrops make me want to buy every new instrument.”