Crypto Drop Season: Why People Make Thousands of Dollars ‘For Free’

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Soul woke up on Christmas Day with a pleasant surprise. It wasn’t an unexpected present in her Christmas stocking, but rather an unlikely alert on her phone. A new cryptocurrency had been launched and he could claim it for free.

It sounds like a scam, no more sophisticated than an email from a purported Nigerian prince. But it was not. Soul, a recreational trader in his 30s who did not offer his real name, clicked “claim,” paid a transaction fee, and watched $ 2,000 in tokens go into his wallet.

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In the confusing world of cryptocurrency, 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 operating on Web3, the internet embedded in the blockchain, are taking a similar route by launching a token that people can buy and sell on the stock exchange. Some of these token launches are accompanied by air drops. If you used the tool provided by the Web3 organization, you get a bunch of tokens deposited 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 thought of as customer acquisition costs,” explained Alex Gedevani of research firm Delphi Digital. Their usefulness is twofold. First, they act like marketers. Nothing captures attention like the prospect of free money. Second, it has become common for blockchain apps to drop when they list a token. Bettors therefore experiment with new apps knowing that, if the app is successful, a lucrative drop is likely in the future.

“It makes me super excited for Web3,” said Soul, who has been trading as a hobby since 2020. “Airdrops make you dig your toes into everything.”

The company behind the Christmas Day airdrop is called OpenDAO. Anyone who bought or sold on OpenSea, the largest NFT marketplace, could claim OpenDAO’s $ SOS tokens. As of January 12, 300,000 wallets had requested the airdrop. (Exceptionally for an airdrop, OpenDAO is not officially associated with OpenSea. The purpose of OpenDAO is to support traders in a way that OpenSea does not – but that’s a whole different story.)

The more money users spent on OpenSea, the greater the airdrop they could claim. Anyone claiming the airdrop would see a Spotify Wrapped-style infographic detailing their NFT trading data from 2021. Soul had spent $ 25,000 on NFT through OpenSea, which placed it in the top 6%.

The airdrops received by the top 1% border on obscene. Crypto Whales posted their infographic on Twitter, bragging about airdrops worth tens of thousands of dollars. Several traders had bought so many NFTs and spent so much on Ethereum’s notoriously high transaction fees that they were able to claim $ 140,000 worth of SOS.

OpenDAO has become the hot new token, with $ 650 million worth of SOS traded on December 26. It now has a market cap of $ 312 million, has been listed on several major stock exchanges, and is among the largest DAOs in the market. (DAOs are decentralized, autonomous organizations, which operate by issuing tokens that also serve as voting rights – token owners then vote on how DAO’s cash is spent.)

If there is one thing that can be counted on in cryptocurrency, it is that success is immediately emulated by others. OpenDAO has garnered tremendous attention and airdrops have been on the rise since then.

In come the drops

Airdrops are not anomalies, but typically spread over a period of several months. Before Christmas, the last big one came in November thanks to Ethereum Name Service, a tool that allows users to change their wallet number to a wallet name, like Daniel.eth. Since Christmas, however, there has been a flurry of airdrops that have sought to emulate the success of OpenDao. The first was GasDAO, where traders lost tokens based on how much they spent on Ethereum transaction fees. The Soul drop was worth $ 1,300. Others got a lot more.

“How I earned over $ 250,000 in the NFT space in December, an analysis of the unique opportunities in this space,” tweeted one prolific trader. “I claimed $ SOS and $ GAS.”

On Monday January 10, Looks Rare followed. This is an NFT marketplace that hopes to compete with OpenSea and has released an airdrop to raise awareness. Anyone who bought or sold an NFT in 2021 can claim $ LOOKS tokens if they list an NFT on the Looks Rare platform. The lowest drop level was worth $ 400, although the most active traders received significantly more.

Next is fees.wtf, on Thursday, January 13, an analysis tool that shows traders how much money they have spent on transaction fees. The airdrop is designed to promote an analytical dashboard tool that fees.wtf will launch soon.

However, not all airdrops are created the same. The goal is to get people not to sell their tokens, but to keep them and buy more. Some tokens gain in value over time, while others sink into obscurity. Looks Rare tokens have doubled in value since Monday’s airdrop, while $ GAS tokens held their value for a few days before most airdrops became worthless.

“After the success of OpenDAO, a lot of people copied,” the creator of OpenDAO 9x9x9 told me. “But they are using the success of OpenDAO to raise funds for themselves.”

9x9x9, which declined to give its name, says airdrops are often used to enrich founders. A team will reserve tokens for themselves, launch an airdrop to create a hype, and then sell the reserved tokens for a hefty price. He didn’t name the airdrops he was referring to, but boasts that OpenDao is a passionate project and that no tokens were reserved for the team.

As is always the case in cryptocurrency, there are risks and scams. A flaw in the fees.wtf smart contract caused the price of the token to collapse in less than an hour, a disaster for early investors. The allure of free tokens is strong, and shady developers can profit by creating questionable smart contracts that can drain funds from the wallet claiming the airdrop.

“Always question any form of free money received in crypto,” said Delphi’s Gedevani. “Airdrops from public-facing teams can be easily identified as legitimate, but there have been a handful in the past with malicious intentions, mostly from unknown sources, which have resulted in loss of user funds. ”

Soul is ambivalent about the risks and instead wants the money to keep flowing. “These drops made me want to buy every new tool.”

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