The Psychology of Airdrops: Why People Love Free Tokens

PAID
11 min readSep 15, 2023

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Introduction

Crypto airdrops, a fascinating fusion of blockchain innovation and marketing savvy. They’re like special gifts of digital assets, often tokens, used to supercharge startups and NFT collections. But they’re not just tokens; they can unlock governance rights and exclusive NFT goodies.

Airdrops have skyrocketed in popularity, especially since 2020. These digital perks have become a rallying point for blockchain enthusiasts, signalling a significant shift in how projects connect with and reward their communities.

So, come with us as we dive into this captivating crypto phenomenon. We’ll break down the mechanics and explore what it all means at the exciting crossroads of crypto and community engagement.

Source: SupraOracles

How Airdrops Work

In the crypto world, airdrops have become quite the marketing tactic for startups. It all starts with a big public call-to-action, often buzzing on places like Discord and Twitter. This generates excitement, whether it’s for a platform’s debut or a new feature they’re rolling out.

As the campaign gains momentum, crypto projects start putting together lists of who should get their tokens. They collect wallet addresses or use snapshots at specific times to decide who’s eligible. Sometimes, they even ask for email addresses to broaden their reach. Then comes the exciting part: smart contracts. These are like self-operating programs that make the magic happen. They take tokens from the company’s stash and send them to the chosen participants, in exchange for a few tasks that the user has to do to receive certain rewards based on their contributions.

Source: BuiltIn

The Many Forms of Airdrops

Airdrops come in all shapes and sizes, each with its own unique goals.These airdrops serve as a potent marketing arsenal for crypto projects, with one overarching aim: growth. Whether it’s a quest for heightened brand awareness, an influx of fresh users, or a token of gratitude to early adopters, airdrops unfold against a backdrop of diverse motives, each type has its own story to tell.

Source: Cointelegraph

Standard airdrop

  • In a standard airdrop, you get free tokens without doing much. Just create an account and share your wallet address. But remember, there’s usually a limited supply, so being quick is key. These airdrops are a hit because they’re simple and offer free crypto. Sometimes, they use a random draw for fairness. It’s like a lottery for free crypto, but winning isn’t guaranteed.

Bounty airdrop

  • Bounty airdrops are all about earning rewards by completing tasks. These tasks do require some effort, but that’s the trade-off for getting free cryptocurrency tokens. They’re usually not too challenging but hold value for the crypto project. That’s why many new projects are going for this type of airdrop.

Holder airdrop

  • In a holder airdrop, you get crypto tokens just for holding a specific number of another cryptocurrency. They check how many tokens you have in your wallet by taking a snapshot at a certain time, usually on a fixed date or within a specific period. Your airdrop amount depends on the tokens in your wallet.

The Human Desire for Freebies

Getting something for free has a special way of making us feel good. It actually triggers the release of oxytocin, the happiness hormone, and helps reduce stress. It’s that joy of getting a deal or saving money that’s hard to beat. Whether it’s kids collecting bonus stickers with their candies or adults choosing something just because it’s “free,” the concept of getting something for nothing really influences our decisions.

Source: Jindal Institute of Behavioural Sciences

This also applies to cryptocurrency airdrops. People just love getting free stuff, and that translates perfectly into the crypto world. Imagine getting some tokens without much hassle. Whether it’s a small amount or something substantial, airdrops bring excitement and a sense of surprise to the crypto community.

Perceived Value vs. Actual Value

Real value is all about how much it actually costs to make something versus what it’s sold for to turn a profit. Basically, it’s the pure value of a product without any extra opinions from the buyer or seller. Now, think about perceived value — this is what people think a product is worth, even if it’s not the actual cost. We tend to create this idea of value to go along with the real value.

Source: Digett

Airdrops are a bit of a dance between what we expect and what we actually get. You see, the real value of an airdrop often depends on the token’s price when it lands in your wallet. On the flip side, the perceived value is all about what folks thought that token was worth before or will be in time, or how useful it turns out to be.

For instance, Arbitrum announced the launch of their token, ARB, on March 16th and held an airdrop on March 23rd. The prominent Layer 2 scaling solution generated enthusiasm and offered a significant airdrop, averaging $2300+ worth of ARB to recipients who sold their tokens within 7 days. This showed how users can benefit from the airdrop’s real value.

Source: Dune/Blockworks

Now, let’s examine the impact of perceived value on the recipients and Arbitrum itself, using the $ARB Airdrop as an illustrative example. On average, individuals who retain their ARB tokens for one month following the airdrop would have accumulated approximately $2700. Selling the received $ARB today would yield a cash out of approximately $1450, representing less than half of its initial value. This could illustrate how the perceived value of a recipient can result in either greater gains or significantly diminished value compared to selling in real time.

Source: CoinMarketCap
Source: CoinMarketCap

Arbitrum experienced significant benefits from their airdrop, with a substantial increase in daily active users and transactions for their layer 2 scaling solution. This growth continued consistently until June 2023, three months after the airdrop. Arbitrum briefly surpassed Ethereum in terms of daily active users and transactions, reaching this milestone in April. This highlights the company’s ability to leverage the perceived value of the airdrop beyond just token prices, resulting in significant benefits. The community and loyal ARB users would have perceived this as an additional benefit, in addition to the profits they gained from the airdrop.

Source: Nansen.Ai

When people dive into token prices, what really counts is the actual real-time value, which often trumps perceived worth. According to a dashboard by Messari data scientist Yule Andrade, web3 users might actually pocket better profits by selling their ERC-20 based airdrops. In fact, they could score a whopping 112.5% return on investment within just a week of receiving them — talk about real value. Perceived value, on the other hand, often leaves holders with considerably smaller gains.

To put it in perspective, Andrade’s dashboard revealed that a user who sold the average number of tokens from each airdrop raked in a cool $108,393.

Source: Dune Analytics/Messari

A holder who waited until March 10 and received all ten airdrops would have a portfolio valued $30,349 at that point.

Source: Dune Analytics/Messari

FOMO (Fear of Missing Out) in Airdrops

Source: Zipmex

FOMO, or the “fear of missing out,” is that feeling of unease when you think you’re missing out on something great that others are enjoying. In crypto, FOMO becomes especially relevant when traders see a sudden surge in Bitcoin or other cryptocurrencies. This anxiety often leads to impulsive trading decisions, all driven by the fear of missing out on potential profits.

Airdrops tap into this unique psychological force within the crypto community — FOMO. It’s that innate desire to be part of something exclusive or rare. When an airdrop is announced, it triggers this phenomenon, sparking curiosity and motivating people to learn more about the project, eager to join the community and grab their share of the rewards. It’s a fascinating mix of psychology and opportunity that keeps the crypto world buzzing with excitement.

Community Building Through Airdrops

Airdrops are like the cornerstones when building blockchain communities. They share tokens with interested folks, pulling in potential users, investors, and advocates, smoothly weaving them into the ecosystem.

But here’s the thing: airdrops are more than just attention-grabbers. They’re tools for crafting communities and thanking loyal users. Projects can use them to stir up excitement and keep their audience engaged.

Gary Vaynerchuk, the creator of VeeFriends, utilised this strategy in 2021 by announcing that customers who bought 12 print copies of his new leadership book would also receive a mystery NFT through an airdrop. This combination of an interesting book and the novelty of a mystery NFT created a significant splash and demand, resulting in over a million pre-orders of the book within a 24-hour period.

Source: Wall Street Journal

The “Loyalty Effect” of Airdrops

Airdrops, when strategically directed at loyal users, work like loyalty boosters in the blockchain community. They not only express appreciation but also kindle a sense of dedication. This leads to increased engagement, encourages community growth, and motivates users to advocate for the project, fostering long-lasting commitment.

Take Uniswap, for example, a prominent Ethereum DEX. It surprised early users with a $UNI token airdrop, granting 400 $UNI tokens to qualified wallets, worth $1,400 at the time. This massive $350 million airdrop rewarded wallets that had been part of the ecosystem before September 2020. The result? A sustained surge in interest, propelling Uniswap to the top spot among Ethereum decentralised exchanges, creating a loyal and thriving community of users.

Source: DuneAnalytics — Rejs

Blur, a popular NFT marketplace, did a big airdrop of 300 million tokens back on Feb. 14. Now, they’re gearing up for “Season 2” and have an interesting twist to boost user loyalty. They’re giving a 100% loyalty score to users who haven’t listed elsewhere and to those who have blue-chip NFTs or active collections on their platform. Plus, engaging with Blur’s social media posts can up your chances even more. It’s a clever move to keep users excited and engaged in the NFT space.

Airdrop Pitfalls: Risks and Scams

Crypto airdrop scams might sound simple, but they can be surprisingly effective. They usually bait people with promises of free tokens, sometimes using fictitious or real cryptocurrencies to seem legitimate. The catch is, there are no actual tokens given out. In fact, they even drain your wallets and steal all of your funds instead. Unfortunately, many unsuspecting folks, tempted by the idea of getting free assets, end up falling for these scams.

Source: BSCNews

Here are a few common airdrop scams and potential risks:

Fake airdrops.

  • Scammers build a bogus project website, and even social media pages to distribute tokens to wallets. To claim tokens, victims are deceived into accessing the bogus website. Scammers then steal their cryptocurrency.

Phishing scams.

  • Bad actors send victims fake project messages. The message usually states that the victim was airdropped tokens and links to a webpage to claim them. The bogus website will steal the victim’s cryptocurrency if they enter their wallet details.

Token approval scams.

  • These schemes send a token to the victim’s wallet to allow the scammers to withdraw other tokens after a victim connects their wallets resulting in scammers stealing cryptocurrency after the victim approves the token.

However, here are a few pointers to avoid getting scammed:

Crypto airdrops offer an accessible entry point into cryptocurrency, but they come with risks. Here are essential tips for safe airdrop participation:

Protect your keys. Never share private keys or seed phrases, even if requested by someone influential.

Research thoroughly. Verify airdrops and their projects through official sources.

No funds upfront. Avoid airdrops that demand crypto transfers beforehand; they’re likely scams.

Use separate accounts. Create dedicated wallets, emails, and social accounts for airdrops.

Be cautious with downloading. Only obtain files from verified sources.

Trust your instincts If something feels off, exercise caution and investigate further.

Sow and Reap: The Art of Airdrop Farming

Airdrops are a golden opportunity in the world of crypto, offering the chance to claim valuable assets for free. But to make the most of airdrop farming, you need to be strategic and proactive.

Source: CharliDefi

Here are some key strategies to help you reap the rewards:

Staying active on chain. Continuous engagement sets you apart. Remaining active during bull and bear markets demonstrates your commitment to the crypto community.

Staking Crypto on Different Chains. Consider staking your crypto assets on multiple chains, especially those with potential airdrop opportunities. Higher staking volumes can increase your chances of receiving rewards.

Interact with New Protocols. Seize opportunities with new protocols: Keep an eye on emerging projects and protocols, especially those on Arbitrum, Optimism, ZkSync, Cosmos, and Aptos, which may offer allocations for future airdrops. Participate in quests, activities and more to increase your chances.

Stay up to date. To maximise airdrop farming potential, follow Twitter accounts for airdrop news and subscribe to newsletters. Join Discord servers and forums related to blockchains and projects for updates. These strategies can increase your chances of securing valuable crypto assets in the crypto world.

Conclusion

In crypto, airdrops are a clever marketing strategy, generating excitement through public campaigns and executing seamlessly with smart contracts. They take various forms, from standard giveaways to bounties and holder rewards. The appeal of free tokens and the interplay between perceived and real value make them thrilling, like Arbitrum’s recent groundbreaking airdrop.

FOMO, or the Fear of Missing Out, drives the airdrop frenzy, attracting enthusiasts to exclusive opportunities. Airdrops also serve as community builders, drawing in potential users, investors, and advocates, fostering enduring dedication. But beware — airdrop scams lurk in the shadows. To stay safe, safeguard your keys, research diligently, avoid upfront payments, use dedicated accounts, exercise caution with downloads, and trust your instincts. And of course, don’t forget to participate in airdrop farming with our tips in mind to maximise your chances.

For deeper insights into cryptocurrency, airdrops, and more, explore our detailed medium articles. Stay updated with PAID Network on Medium and social media for the latest updates and insights.

Disclaimer: Mention of any specific projects do not constitute any endorsement or recommendation. Any tokens and strategies are not financial advice. Readers should conduct their own due diligence.

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