How Airdrops Work

Now that you know your way around a crypto wallet and may have even traded some tokens, it’s time for you to learn about airdrops. 

An airdrop is when a cryptocurrency or web3 project sends tokens directly to the public. Airdrops are a common way for projects and cryptocurrencies to incentivize activity on a platform, distribute tokens into circulation, reward loyal community members, promote a token, create liquidity, and get more users — and they’re a great way for you to earn from participating in web3. 

In 2023 alone, over $4 billion in value was airdropped to wallets around the world by decentralized exchanges, DeFi platforms, and memecoins. They’re a great example of the new kinds of assets, financial services, and economies that exist on web3. And it’s not just crypto companies In fact, the government of El Salvador has even airdropped citizens who installed the government-built wallet with $30 worth of BTC. Today, the biggest airdrops in crypto happen on the Solana network because it’s so affordable, fast, easy to use, and has such a rapidly growing ecosystem of developers, projects and community. 

If you’ve set up a wallet and have learned a bit about the Solana ecosystem, you’re almost ready. Here’s what else you need to know before participating in your first airdrop…

The Solana ecosystem has witnessed many notable airdrops, including Orca, BONK, Pyth, Jito. These airdrops have played a big role in stimulating activity in the Solana ecosystem, rewarding early adopters, and attracting new users. 

Here’s a quick tour of some notable airdrops:

BONK — Popular memecoin BONK airdropped 50% of its token supply to Solana users who contributed to the development and growth of the network in some way.

Jupiter —  Jupiter Exchange airdropped $700 million in its JUP token to users and community members. The token is a governance token, meaning each one comes with rights to participate in decision making for the Jupiter platform.  

Pyth —  The Pyth Network airdropped 255 million PYTH tokens to users and connected dapps as a reward and incentive for participation in governing the platform.

Orca — Decentralized exchange Orca airdropped its ORCA token to early contributors, users, and community members

Jito — Staking platform’s JITO airdrop was part of the project's efforts to distribute its tokens and incentivize participation

Crypto projects airdrop tokens for many reasons. These airdrops serve as a way to incentivize activity on a platform, widen awareness of a currency, or to increase participation in governing the platforms themselves. Each token will come with its own value and use case, while each airdrop will come with its own criteria for participation and method for determining how it is distributed. 

• Promotional airdrops are used by new projects or cryptocurrencies to raise awareness and attract users to a platform. 
• Holder airdrops are available to wallets that hold a specific cryptocurrency. 
• Loyalty airdrops are used to reward community members and incentivize early adopters to use a platform and take part in governance
• Bounty airdrops offer rewards for completing specific actions, like promoting a project, or participating in bug bounty programs.

The first thing you need to participate in an airdrop is a wallet. If you still need to set up a wallet, you can reference our explainer on How to Use a Crypto Wallet to get you up to speed. It’s also very helpful to use wallet dashboards like Step Finance, which help you visualize your portfolio and safely engage with web3, while providing streamlined functions and analytics to keep you informed. 

Eligibility for receiving airdrops is determined in a few ways, and is specific to each particular airdrop. Common criteria include holding a specific cryptocurrency or NFTin your wallet, participating on a platform with specific actions like trading or staking, or even simply signing up. The way tokens are airdropped may also be weighted based on the amount of participation. 

Tokens in an airdrop may also be distributed proportionally based on the amount of tokens you hold, equally to all eligible participants, or based on the completion of certain tasks or actions, like buying, selling, trading, or staking on a platform. 

Here are some examples of ways to participate that have been rewarded by airdrops:

• Holding specific cryptocurrencies in a wallet 
• Trading assets on a decentralized exchange
• Contributing your tokens to a platform’s liquidity 
• Completing tasks on a Github 
• Participating in a Discord channel 

Airdrops are usually preceded by a snapshot. This is when the airdropping organization records the state of all user activity and engagement at a specific point in time. This snapshot is used to determine the allocation of airdropped tokens. At the time of the snapshot, if you have performed the required actions outlined in the airdrop criteria, you become eligible to receive the airdropped tokens. Many projects use a points system to streamline the process and provide users with a defined incentive system.

Once an airdrop is officially live, eligible participants can usually claim token rewards through the project's official website or designated claim process, and they’ll appear in your wallet. On Solana, most airdrops are not sent directly to your wallet. Usually, you'll need to claim your tokens on a dedicated website. To make things easier, if one of your wallets is eligible for an airdrop, wallets like Solflare and Phantom notify you via push notifications that you can click to head directly to the official airdrop claim page and claim your tokens.

Once you have claimed your tokens, there are plenty of ways you can make use of them. 

Hold them: If you think your airdropped tokens will go up in value, you can hold on to them.
Trade them: You can usually trade your airdropped tokens for other cryptocurrencies.
Use them on platforms: Many airdropped tokens come with utility on the platforms that offer them, and throughout the DeFi ecosystem.
Participate in governance: Many tokens come with voting rights in how the offering platform is governed. Token holders can participate in policy.

Participating in airdrops requires that you maintain some basic security practices. The most important thing you can do is be knowledgeable of the projects you’re interacting with and ensuring that the websites, social media accounts, and wallets you interact with are legitimate. Airdrops have been used in phishing scams, where fraudsters attempt to steal users' private keys or cryptocurrency holding rely on directing an investor to attach their wallet to a phishing website in order to claim their airdrop. Typically, phishing scammers will impersonate reputable projects with upcoming airdrops in an attempt to get you to give them personal information or connect your wallet to their scam site. 

Here’s an airdrop security checklist to help keep your assets safe:

• Research and verify the legitimacy of airdropping projects thoroughly.  
• Be vigilantly aware of anything that may be a phishing attempt 
• Bookmark official websites, follow official social media accounts, and save communication channels. 
• Verify the authenticity of airdrop announcements and claim processes
• Double-check website URLs and official communication channels
• Never enter your wallet’s private keys or seed phrases on websites or forms
• Always be wary of unsolicited tokens airdropped into your crypto wallet. 

It’s always a good time to refresh your knowledge on Crypto Security Essentials.

If you want to keep your airdrops separate from your primary investments or main wallet, consider creating a new wallet specifically for airdrops. You can have as many wallets as you like, and after receiving the airdropped tokens, you can then transfer them to different wallets as you please.  

Lastly, receiving airdropped tokens may have tax consequences, as they could be considered income or a taxable event in some jurisdictions. It's crucial to understand the tax regulations in your area and maintain accurate records of your airdrop activities to ensure compliance.