This resource covers all things airdrops; what they are, associated risks, participating in them; tax implications; and how to discover them.
What Are Airdrops?
An airdrop is a distribution of cryptocurrencies to a predefined set of blockchain addresses, free of charge. Projects typically administer airdrops to generate awareness and/or reward early adopters. For example, when Uniswap launched its $UNI token in Sep. 2020, it airdropped 15% of the total supply to historical users and liquidity providers.
Before going deeper into airdrops, it’s important to know the risks associated with them.
To participate in an airdrop, projects typically require you to provide varying levels of identifying information. Some will require nothing more than a blockchain address, whilst others will ask for personal details such as your full name, date of birth, email address and license number.
Whilst providing personal information isn’t inherently ‘bad’, do note that the more parties you give your details to, the more vulnerable you become to identity theft. (More on this in the Beginner’s Course unit entitled ‘Basic Online Security Tips’.)
When you are required to share a blockchain address or email address as part of an airdrop campaign, strongly consider using one that you create exclusively for airdrops. If you are required to post your address via social media, consider creating an anonymous account from which to participate. (Alternatively, you may prefer creating a new address and/or social media account for every airdrop you participate in.)
What’s your ETH address?
Don’t ask why, just drop it below 👇
— Showtime (@tryShowtime) February 25, 2021
Example of a tweet in which a project is gathering addresses for a future airdrop
How to Participate in Airdrops
Projects set all sorts of criteria for participating in their airdrop campaigns. This is intentional. Remember: most projects use airdrops as a mechanism through which to reward legitimate early users. Generally speaking, the easier an airdrop is to participate in, the easier it is to gamify and be exploited by external parties who couldn’t care less about the project.
That said, there are several things you can do to increase the likelihood of being a recipient of future airdrops. (Of course, this all assumes that the project does indeed administer an airdrop in the future.)
- Participate in governance by voting on improvement proposals via Snapshot or another app. Some projects will airdrop tokens to those who have participated in the governance of another protocol. One example of this was Popsicle Finance, which airdropped 0.5% of its ICE token to the 5,377 addresses that voted on BadgerDAO’s Snapshot page. Another was UMA, which airdropped KPI Options to Snapshot voters of certain DeFi protocols.
- Projects typically deploy their solutions on a testnet before launching it on mainnet. Some will invite the public to try out the solution on testnet. Should the project launch a token at a later date, and it airdrops a portion of this token, there is a decent chance that testnet users will qualify for the airdrop.
- Liquidity providers are common recipients of airdrops, even when they are providing liquidity to a different project. For example, ZKSwap airdropped $ZKS to PancakeSwap LPs and Mdex LPs.
- Contributing to Gitcoin Grants can be enough to qualify for airdrops. For example, Badger DAO airdropped $BADGER to Gitcoin Grants Round 8 donors.
- Use solutions created of token-less projects. Should token-less projects launch a token, there is a strong chance that a portion of the supply will be airdropped to early users. For example, 1inch airdropped $1INCH to addresses that had traded before a certain date, executed at least 4 trades or traded for a total of at least $20.
- Simply hold a cryptocurrency. This is particularly relevant for crypto projects that conduct a hard fork. For example, when Bitcoin Cash launched in August 2017, $BTC holders were airdropped $BCH on a 1:1 basis.
If you store your cryptocurrencies on an exchange, there is no guarantee that you will get airdrops associated with that cryptocurrency. There have been countless instances where an exchange has not supported an airdrop. To figure out whether your exchange will support a certain airdrop, check their Help Centre or Support pages. (For example, CoinSpot Help Centre, Binance Support and Coinbase Help Centre.)
Tax Implications of Airdrops
According to the Australian Taxation Office webpage entitled ‘Transacting with cryptocurrency‘ (as at Apr. 5, 2021):
Some projects ‘airdrop’ new tokens to existing token holders as a way of increasing the supply of tokens (for example, Pundi X and Tron). The money value of an established token received through an airdrop is ordinary income of the recipient at the time it is derived.
In other jurisdictions, tax treatment of airdrops varies.
Discovering Upcoming Airdrops
Projects are constantly announcing or hinting at airdrops. Stay up to date in Collective Shift Crypto Community by following the Airdrop Mega Thread. If you come across an upcoming airdrop, let your fellow members know by commenting on the thread. Also, bookmark our Airdrops page to track what our analysts believe are the most likely future airdrops.