In the cryptocurrency space, the term “airdrop” refers to the unsolicited distribution of tokens, typically for marketing purposes or as a reward for participation in or contributions to the network.
The first recorded cryptocurrency airdrop took place in 2014, when Auroracoin gave out its native cryptocurrency, AUR.
Another well-known airdrop was decentralized exchange Uniswap, which gave its UNI (UNI) governance token to its users in 2020. In total, more than 250,000 accounts received 400 UNI each.
While airdrops may have encouraged some to become more active on blockchain networks, Chris Bradbury, CEO of decentralized finance (DeFi) platform Oasis.app, told Cointelegraph that users have realized how airdrops can be exploited, which has led to the phenomenon of “airdrop hunting”.
Airdrop hunters aim to make money by farming airdrop tokens, hoping they will become valuable.
A recent example occurred during Arbitrum’s ARB airdrop, with on-chain activity revealing that airdrop hunters consolidated $3.3 million ARB from 1,496 wallets into just two.
We found 2 super airdrop hunters of $ARB.
0xe1e2 received 1.4M $ARB($1.92M) via 866 addresses and added all 1.4M $ARB to #Uniswap to provide liquidity. https://t.co/sncsZTHrP2
0xbd4e received 933,375 $ARB($1.28M) via 630 addresses.https://t.co/p5vbqXMYxD pic.twitter.com/yK3LzbeC8t
— Lookonchain (@lookonchain) March 24, 2023
We found 2 super $ARB airdrop hunters.
0xe1e2 received $1.4 million ARB ($1.92 million) across 866 addresses and added the $1.4 million ARB to #Uniswap to provide liquidity.
0xbd4e received $933,375ARB ($1.28M) across 630 addresses
According to blockchain analytics platform Lookonchain, one wallet received 1.4 million ARBs from 866 addresses, worth around $2 million at the time, while another wallet received 933,375 ARBs from 630 addresses, worth around $1.38 million.
On March 20, Lookonchain revealed that six specific airdrop hunters had landed almost all of the massive airdrops in the crypto sector.
1/ Missed the $ARB airdrop?
We found 6 smart airdrop hunters who have gotten nearly every massive airdrop in crypto.
Including:$ARB, $OP, $BLUR, $SOS, $LOOKS, $ENS, $DYDX,$1INCH, $UNI, $HOP, $FORTH, $GTC.
Follow their transactions and you won’t miss the next airdrop. pic.twitter.com/5XGmDgFj1t
— Lookonchain (@lookonchain) March 20, 2023
Bradbury told Cointelegraph that “professional airdrop hunters will use scripts” to consolidate many different addresses into just a handful. “We’re not talking about someone with thousands of wallets; these will be developers sophisticated to multitask across many wallets all programmatically,” she said.
a dangerous game
Bradbury further noted that while the tactic has the potential to be profitable once the costs and time involved are subtracted, it does come with some serious financial risks.
“Airdrop hunting is indeed a gamble”, he said, stating that it requires finding protocols that haven’t released a token, and then interacting with them in every possible way that could qualify the hunter to earn a share of the airdrop.
Bradbury added that the risks are even greater when the protocols are new or unproven:
“The nature of retroactive airdrops means that you are often using new protocols, which have not stood the test of time. And in most cases, you have to deposit your assets into these protocols, which increases the risk that you could lose your assets due to bugs or hacks.”
“The cost of airdrop hunting can quickly outweigh its value if it isn’t made into a top-tier protocol”Add.
Not taking gasoline and other financial costs into account can also be a problem for hunters.
How many of you missed Aptos #airdrop ? How many missed Arbitrum? Missed DyDx, Blur, Space ID etc.. ?
Airdrop hunting is not an exact science.
We spend many hours, we hope, we get discouraged, we do not see rewards coming, then when it fails, the result is always the same:
—@0xFastLife) April 15, 2023
How many of you missed the Aptos airdrop? How many were lost Arbitrum? Did you lose DyDx, Blur, Space ID etc..?
Airdrop hunting is not an exact science.
We spend many hours, we wait, we get discouraged, we don’t see the rewards coming, then when it falls, the result is always the same:
Bradbury says it can become difficult to find and complete the tasks needed to earn a potential airdrop as protocols come up with more innovative criteria.
“Most protocols are now trying to come up with innovative ways to decide who gets an assignment, so the likelihood of spending time and money on something that doesn’t count is increasing,” Bradbury explains.
“Ultimately, you have to use the protocols, hoping to ‘win’ by doing the right actions in the right protocols, but not really knowing what to do, like in a game”he added.
Consequences of Airdrop Hunting
Airdrop hunting has become a relatively common practice in the crypto sector, as individuals and groups look for opportunities to receive free tokens and make a profit.
Crypto-Twitter has many users who offer tips on the best ways to hunt for airdrops, sharing protocols that could provide a profit opportunity, and exchanging other airdrop-related tips.
Some platforms, like the DeFi analytics DefiLlama, even have a page showing projects that don’t have a token yet but might in the future.
Zoe Wei, head of developer relations and marketing at BNB Chain, explained to Cointelegraph that the scope of airdrop hunting can vary depending on the specific airdrop and the measures taken by the project team to mitigate the activity.
He also noted that the practice could create long-term problems for protocols as they try to incentivize ecosystem builders and contributors, which are crucial for long-term growth.
“Airdrops are important for the growth of a community from an early stage, but the difficulty lies in identifying contributors: distinguishing between true contributors and those who only contribute for a reward,” Wei said.
According to Bradbury, the long-term health of a protocol depends on rewarding the true users and supporters who are there to help. Failing to recognize this can lead to an exodus, as users search for other projects.
“This idea that there can be a generous reward and monetary value for using the protocol is actually how protocols get early adopters and the initial liquidity they need.”he claimed.
However, Bradbury added: “The biggest problem is that, in most cases, once the airdrop has occurred, if you don’t continue to reward users for using the protocol, many will abandon it and move on to the next project”.
Solutions to stop airdrop hunters
Determining the identity of the individuals or groups behind airdrop hunting can be difficult due to the opaque nature of blockchain transactions, which can pose an obstacle for projects trying to crack down on this practice.
Wei said that’s one of the main reasons airdrop hunting is likely to continue, especially if the projects behind the airdrops don’t implement stricter eligibility criteria or take measures to discourage airdrop hunting.
However, he noted that there are other options available to the protocols, such as exploring alternative token distribution methods or applying stricter criteria to ensure a fairer distribution of tokens among participants.
According to Wei, one specific solution could be soulbound tokens (SBTs), which are non-transferable and will ensure that only true supporters receive rewards if projects are only distributed to addresses that hold SBTs.
SBTs are digital identity tokens that represent the traits, characteristics, and achievements of a person or entity and are issued by “souls,” which represent blockchain accounts or wallets.
Wei believes that a shift towards using SBT would also make token distribution more selective and fair.
“Adopting the SBT concept can make the task of airdrop hunters more difficult, promoting a fairer distribution of tokens and contributing to the ecological prosperity of the ecosystem,” he stated.
“It helps ensure that airdrops are primarily targeted at genuine followers and engaged users rather than opportunistic airdrop hunters.”
Wei further argued that decentralized autonomous organizations could enforce fairness in governance by using SBT tokens to vote and prevent spam from bots.
Another approach could be the use of random distribution methods or limiting the number of tokens distributed per address to avoid disproportionate gains by airdrop hunters.
“Additionally, projects could focus on distributing tokens to their most active and engaged users, taking into account factors such as participation in the project’s community or usage of its platform, to encourage genuine participation and discourage airdrop hunting. “Wei said.
Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.