What Are Crypto Airdrops? And Are They Worth the Risk?

Few phrases in cryptocurrency trigger the fear of missing out (FOMO) faster than "free coins." Social media used by cryptocurrency natives overflows with screenshots from people who supposedly banked five-figure windfalls simply by clicking a button, or sometimes simply by holding a certain coin. The allure taps mankind's primordial impulse to find and then eat free lunches whenever possible.

But it's been said that there's no such thing as a free lunch, and that if something is too good to be true, it probably isn't real. That tension is why crypto airdrops feel at once irresistible and, for most investors, maddeningly unrewarding. For some, they can even be disastrous.

Let's unpack how these giveaways really work, what can go wrong, and why skipping them usually beats chasing them.

Image source: Getty Images.

How airdrops really work

For the uninitiated, an airdrop is, at its core, a marketing stunt.

In a nutshell, an airdrop is when a cryptocurrency protocol or side chain sends free tokens into all wallets that meet a specific set of on-chain criteria. The objective is for the recipients to talk about the asset, trade it, get others to use it, and generally to bring in some liquidity.

Crucially, you will never ever see established cryptocurrencies like Bitcoin, Ethereum, or other dominant networks airdropping coins. Their brands are already strong. The issuers are almost always newer players with fairly small market caps looking to bootstrap users.

Qualifying for airdrops usually requires performing on-chain actions weeks or months before the drop. Usually the more of those actions the user performs, the larger their distribution is. Thus there's the term "farming airdrops," wherein users intentionally do repetitive actions on a network with the goal of inflating their record of actions that should in theory generate a larger airdrop for them whenever it occurs.

For example, Arbitrum awarded at least 625 ARB tokens, worth roughly $800 on launch day, to addresses that had bridged assets or used its apps before a March 2023 snapshot. Those airdrop criteria are relatively loose in the sense that it was very easy to qualify. In contrast, Optimism's third airdrop sprayed 10 million OP across 54,000 wallets, but filtered for governance voters and repeat bridge users rather than passive holders.

In other words, on average, qualifying for airdrops isn't dumb luck as much as it is a combination of luck in selecting the right protocol to use and consistently doing the right kind of grind. You will usually need to be paying gas fees and hoping that the issuer's rules about qualifying don't change.

Then, on claim day, you typically need to take action in order to collect, though in some cases the airdrop is automatically distributed to qualifying wallets. Sometimes the haul is large. Sums as high as $12.1 million have been reported as recently as 2023.

But such jackpots are very much statistical outliers, not the norm in any way.

The hazards are real, too

Airdrops are, in my experience, rarely worth the amount of time, capital, and risk it takes to find and then farm them.

Gas fees can add up very quickly, especially when farming airdrops on chains like Ethereum. Bridging your assets to a new chain can also be expensive. And your time is valuable. Clicking buttons inside of a decentralized finance (DeFi) app for hours on end is tedious at best.

Next comes uncertainty.

Some chains hint at big airdrop offerings without making any explicit commitments, leading investors to park their capital and perform effort for months. Then, when the big moment arrives, sometimes users receive just a fraction of what rumors suggested. Expectations and outcomes rarely line up because issuers reserve the right to tweak formulas until launch.

Security risk is the darker side.

Phishing sites spin up within minutes of every announcement, mimicking claim portals and emptying wallets after one mistaken signature. "Free" tokens can be Trojan horses that grant attackers illicit spending permissions on someone's wallet. Rug-pulls masquerading as community drops further prove that marketing can pivot to malice overnight.

Given those frictions, the expected value of farming random airdrops trends low.

When farming an airdrop might still make sense

There are scenarios where the math can flip in your favor when it comes to trying to qualify for airdrops.

If an issuer discloses eligibility early, publishes a fixed formula, and has venture capital (VC) backing or clear product-market fit, the risk-adjusted reward can justify a measured allocation of your time and capital.

For instance, Arbitrum's drop met that bar. Rules were posted months ahead, there was a live ecosystem, and there was a public investor roster stacked with blue chip crypto funds.

To tilt odds in your favor, verify announcements on the project's official domain and social channels before interacting, use a fresh wallet containing only the funds you need for the task, and cap your spending by setting a maximum in fees or deposits you are willing to risk. Remember that airdrops are ads.

Most investors are better served by owning high-conviction assets directly, holding for years, and ignoring siren calls of "free money." The time you spend trying to out-game anonymous token issuers could be better spent researching enduring projects, or simply enjoying an afternoon offline.

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Alex Carchidi has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.