Cracking the Code of Airdrops: A Practical Guide to Earning Free Crypto

Airdrops: Understanding the Hype

Last year, the airdrop niche caused quite a stir, especially with Arbitrum's airdrop, which saw around 600,000 wallets receiving up to $1,000 each. Users only needed to make 2-3 transactions over a couple of months, costing $1-2. This led thousands of people to create farms for airdrops and testnets. Let's break down what an airdrop is.

What is an Airdrop?

An airdrop (also known as a drop or retrodrop) is the free distribution of tokens in exchange for some interaction with a project. Typically, these tokens are given unexpectedly as a reward for "loyalty" to the project.

### Examples of Profitable Airdrops

- Uniswap: This Ethereum-based DEX gave 400 UNI tokens to each user for a single transaction. At the start of trading, these tokens were worth approximately $2,000.
- Aptos: This Layer-1 blockchain distributed 150 APT tokens (~$1,000) for creating a free NFT.
- Wormhole: This cross-chain bridge protocol gave 1,000 W tokens (~$1,500) to accounts with 10-20 transactions totaling $50,000. The cost of setting up such an account was around $5.

There are at least 50 other major and mid-sized projects that have conducted similar airdrops. It sounds almost too good to be true, but there are caveats.

Why Do Projects Conduct Airdrops?

From a project perspective, why give away tokens instead of selling them? Here are four reasons:

1. Legal Issues: In some jurisdictions, public token sales are restricted. For example, the SEC in the United States can classify tokens as securities under certain conditions. To avoid these legal issues, major projects often opt for airdrops instead.

2. Team Profit: Even though tokens are distributed for free, the team usually holds a portion of these tokens. Additionally, some of the wallets receiving the airdrop might belong to the team, though this is speculative. Tokens themselves are essentially valueless until the crypto community assigns value post-listing.

3. Community Engagement: The crypto community has grown accustomed to retro-hunting (chasing airdrops). If a project doesn't distribute an airdrop, the community might react negatively, potentially damaging the project's reputation.

4. Hype and Marketing: Successful airdrops can significantly boost a project's media and public reach, as seen with Arbitrum and Blur. This increased visibility can be beneficial in the long term.

5. Market Conditions: During bear markets, people are less willing to invest in token sales. Airdrops appeal to the community's desire to gain substantial rewards with minimal effort, akin to a new type of gambling.

How to Earn Airdrops?

The key to earning airdrops is to use the project actively. Here are the main actions that could qualify you for a drop:

- Transactions: Engage with the project through various activities like buying tokens, creating or purchasing NFTs, transferring funds through bridges, or staking coins.

Projects typically consider factors such as:
- Number of transactions
- Transaction volume (e.g., 10 transactions of 100 USDT each equals 1,000 USD in volume)
- Active participation over weeks or months
- Completing testnets and quests, which may require using their platform and performing transactions that could later be rewarded
- Active involvement in the project's community, including becoming a tester, attending calls, or becoming an ambassador
- Following the project on social media
- Referral programs
- Early adoption
- Collecting commemorative NFTs issued by the project

Which Projects to Focus On?

Focus on projects that:
1. Do not yet have a token.
2. Have substantial investment and backing from notable funds like a16z, Binance, Coinbase, Sequoia, or Polychain. You can check funding information on websites like [Cryptorank](https://cryptorank.io/funding-rounds).
3. Have low competition. Sometimes, smaller projects with fewer active users can be more rewarding.

For example, LayerZero, with $300 million in funding, might be less optimal due to its high user count (~5 million). In contrast, a smaller project with $3 million in funding but only 100 active participants could be more advantageous.

Key Considerations

Earning airdrops may seem straightforward, but there are potential pitfalls:

- Transaction Costs: Transactions within a project aren't always free. Users have reported spending $30-50 per account without receiving any airdrop.
- Criteria Compliance: You might not meet the airdrop criteria. For instance, making 20 transactions over three months might be insufficient if the requirement is 50 transactions over 12 months.
- Sibyl Attacks: Using multiple interconnected wallets or performing identical actions can lead to disqualification.
- Token Necessity: Some projects may not require a token within their business model.

Typical Airdrop Cycle

1. Identify the project. 2. Engage actively with the project for about six months. 3. The project takes a snapshot of all users. 4. The project announces the airdrop approximately a month after the snapshot. 5. Criteria announcement. 6. Check if your account meets the criteria. 7. If eligible, claim your tokens. 8. Transfer to an exchange and sell.

Conclusion

Engaging with a project before a snapshot and meeting all the criteria is essential. Missing the snapshot or failing to meet the criteria means wasted effort and money. Each project is unique, but understanding this cycle can help you navigate the world of airdrops effectively.