Airdrops have gotten a lot of buzz but are often misunderstood. Simply put, airdrops are a way to distribute cryptocurrency where coins are sent to specific addresses for free. For example, in April 2018 Tron (TRX) sent an airdrop of TRX coins to Ethereum (ETH) holders. The Tron team distributed 30 million TRX tokens to Ethereum addresses, proportional to the amount of ETH held by the address. Any address that held at least 1 ETH and had sent at least one transaction in 2018 was eligible to receive TRX. In addition, some cryptocurrency projects use airdrops to reward existing holders, like a dividend for traditional equites.
Cryptocurrency projects typically create airdrops to help jumpstart a currency, raise awareness, or to reward an existing community. Tron’s airdrop allowed them to generate some buzz around their mainnet launch by sending TRX directly to the coin owners of one of their biggest competitors (i.e. ETH). DFINITY (DFN) also held a relatively large airdrop where they sent DFN tokens to members of the community who had joined the DFINITY mailing list at least two months prior to the airdrop. This served as a way to reward loyal community members, as well as to build some buzz around the project and get the tokens in the hands of potential users.
Airdrops are sometimes limited by location because of legal or regulatory reasons. For example, DFINITY’s airdrop was not available to U.S. residents.
To comply with securities and money transmission laws, recipients of airdrops are often required to go through Know Your Customer (KYC) and Anti-Money Laundering (AML) verification. These verifications are typically done through third-parties like CoinList and require the airdrop receiver to submit official identification for approval.
Most airdrops also require that you have an “active” address in order to receive coins. In order for an address to be considered active it typically needs to have made a transaction within the last 6–12 months (or whatever time frame the project specifies). This is usually done to try to avoid sending coins to random or inactive addresses. Most airdrops allow you to use a wide range of different wallets, but it’s best to check the rules of the specific airdrop to see if any specific types of wallets are incompatible.
Why does this matter? First, airdrops are increasingly viewed as dividends or sources of passive income. While this opens important questions about securities regulation and taxation, token holders are typically not required to go through complex technical procedures, like in the case of hard forks, to receive their airdrops. Second, in a world where shorting physical cryptocurrencies is a reality, it’s conceivable that delivery of airdrops may be required by crypto managers who are short. Finally, airdrops can be an effective method to build or bootstrap a community of users. It is our belief that in the world of open source software that underpins cryptocurrencies, end user and community adoption matters most.
At Digital Asset Research we keep track of all the important events for crypto managers and are making our results available as part of our new Crypto Catalyst Calendar. These events include airdrops, but also include mainnet launches, forks, legal and regulatory events as well as anything else that might affect the price of a digital asset.
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