They say you get nothing for free in this life,
but tokenized projects running airdrops would beg to differ. You can now get a whole lotta crypto assets for free – hundreds of them in fact – simply for signing up and following some social channels. What started as a novelty has become the norm, with a vast number of ICOs now earmarking a portion of their tokens for free distribution. Questions remain though about the legal status of airdropped tokens in an age where anything related to crypto risks being labeled a security.
Airdrops Are the New Faucets
In bitcoin’s earliest days, faucets were used to distribute the cryptocurrency. Fractions of a bitcoin were given away on tap, back when BTC was cheap enough to send in small amounts and bits were worth buttons. Anyone who claimed those free morsels back in the day and held onto them will have eventually came into possession of some extremely valuable cryptocurrency. Today, airdrops are the faucets of the token economy. These freely dispensed tokens aren’t worth much – if anything – but there’s a small chance that one day they might be worth something.
At the Crypto Investor show in London last weekend, glossy flyers promoted an after-party with “free drinks + airdrop”. Come for the prosecco, stay for the tokenized revolution. Such is the prevalence of airdrops that an entire cottage industry has sprung up to promote them and inform crypto holders of the latest ones worth catching. Prominent Twitter traders compete to top the referral leaderboard for airdrops, whereupon they will be rewarded with yet more tokens. Everyone’s clamoring for free tokens right now, even though no one’s sure whether they’ll ever have any utility or market value.
Get Your Airdrops While They’re Hot
For new entrants to the cryptocurrency scene, airdrops provide a way to get some points on the board, or rather some tokens in the portfolio. The very act of claiming them is enough to teach beginners the basics of wallet use and receiving crypto. The problems these projects purport to solve also provides a primer on the weird and wonderful world of crypto. Such is the prevalence of airdrops, they now have a dedicated Bitcointalk forum thread, dedicated Telegram groups and, in Airdropalert, a website that promises you need “never miss a free crypto airdrop again!”
Most of the tokens awarded are ERC20s, though other blockchains have also caught on; NEO for example recently distributed ONT via an airdrop. Just like an ICO tracker, Airdropalert filters offers based on upcoming/active/past. Tokens currently up for grabs include Boutspro, Yee, Sofin, and Aelf. Giving away tokens is easy in the early stages of a project, when they’re literally worth nothing. The trick is getting the airdrop community to start using these tokens on the platforms they were designed for. If that occurs, and the project reaches critical mass, the tokens should rise in value, and then everyone will be a winner. Or so the theory goes.
There’s No Such Thing as a Free Lunch
While the legal status of tokens has attracted a lot of scrutiny recently, little has been said about airdrops. Does the act of giving something away for free mean it is free from securities laws and other regulations affecting cryptocurrency? Probably not. As Tokendata recently noted: “While airdrops can make economic sense…we’ve seen some ICOs revert to airdrops because they believe that: Airdrops reduce the regulatory footprint in terms of securities laws…Airdrops increase a project’s valuation instantly”.
Tokendata then goes on to explain that airdrops are still subject to securities regulations. The problem is that airdrop claimants aren’t obliged to undergo KYC, as ICO participants now routinely are. If it were necessary to submit documents for verification, suffice to say the airdrop business would fold overnight. People are always up for free stuff, but force them to jump through too many hoops and they’ll walk away. But should the SEC come after an ICO further down the line, and it emerged that 5% of their tokens were in the hands of unknown investors, there could be trouble.
Blockchain advisor and investor Oliver Isaacs opined: “The attraction with airdrops is natural, as they have the potential to rapidly onboard users and create an engaged community virtually from day one. ICOs need to be careful to be seen to issuing airdropped tokens for the right reasons though, and not as a means of circumventing securities laws.”
The truth is, no one knows for sure where regulations are going to lead the crypto economy, both in the U.S. and the rest of the world. Tokens may or may not be commodities, securities, or some new asset class that’s yet to be defined. But whatever they are, doling them out like confetti could be a recipe for regulatory trouble should these tokens attain value. Cryptocurrency users won’t care about this stuff – they’re only there for the free tokens after all – but it’s something ICOs should carefully consider. One cease and desist order and the entire airdrop racket could come tumbling down.
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Kai's been playing with words for a living since 2009 and bought his first bitcoin at $19. It's long gone. He's previously written white papers for blockchain startups and is especially interested in P2P exchanges and DNMs.