After an incredible and tumultuous run through 2021, we’re starting to see Bitcoin and Ether start to move sideways, with the potential for a major correction in the near future if traditional markets start to tank. Prices are at or near all-time highs for many projects, and both Bitcoin and ETH recently posted new ATHs followed by relatively sharp corrections thereafter. It seems that we are potentially entering the final phase of the macro bull market, during which many traders, investors, and crypto funds will be taking profits and reducing risk exposure (many already are).
However, there is still a virtually zero-risk (minus gas fees) option with incredible potential upside for tech-savvy crypto enthusiasts, and it requires virtually no trading knowledge whatsoever. I’m talking about airdrops, or the acquisition of free tokens “dropped” into your wallet for various reasons, mostly for using a new protocol. In this post, I’ll describe the concept and discuss a few past airdrops that were incredibly valuable, and then talk about ways to qualify yourself for airdrops in the future and whether or not you should sell them immediately, or hold into the future.
We’re at a point in the crypto timeline where protocols are actually being used for more purposes than pure speculation, and the utility of many blockchains is growing rapidly. However, as the number of new platforms, tokens, and exchanges grows, these entities are competing for smaller and smaller portions of the market. In order to entice users into using their protocol, or retroactively reward early supporters, many (not all) projects are sending free tokens to those who interact with their project in some way or another. Let’s take a look at some of the major airdrops that have already happened, and what they were worth:
- Uniswap ($UNI)
Uniswap, now the biggest DEX in the world, really started its explosive growth in early/mid 2020. Anybody who used the Uniswap protocol during the first half of 2020 was given 400 $UNI tokens for free as a reward on 17 September 2020, which at the time of the airdrop was worth approximately $4 per token at the end of the trading day. Essentially, Uniswap gave people at least $1600 for free just for using their exchange. Over the course of the next year, $UNI would become worth up to approximately $45, meaning if you held your airdrop until May 2021 (right before the big crash) you could have cashed those tokens out for a cool $18,000.
2. Ethereum Name Service ($ENS)
Ethereum Name Service is essentially the same thing as DNS, the service that allows domain names (e.g. Medium.com) to route to a specific location on the Internet. ENS does the same thing, creating a human-readable name (such as plAIgrounds.eth) and attaching it to a public key (my wallet). Up until recently, ENS was a private entity governed internally, however anybody who had registered a .eth domain name through ENS before mid-October 2021 qualified for an airdrop of their governance token, $ENS. The goal of the token is to provide voting power to the community to govern the direction of the ENS platform.
The number of tokens varied on how long you had the name, how many names you had registered, and for how long into the future you had your domain registered, but the minimum was approximately 80 $ENS. I had registered my name about 6 months before the airdrop, but I paid to own it for several years, and this qualified me for approximately 485 $ENS tokens. At the time I claimed my airdrop in late October, $ENS was worth about $75 per token, which was worth about $35,000 for me. I didn’t sell all of it immediately, but I ended up walking away with about $30,000 for free!
ENS is easily one of the most valuable airdrops in existence, particularly because of the importance of the token and the ENS project in the decentralization movement. However, it’s still dwarfed by another airdrop that happened earlier in 2021…
3. dYdX ($DYDX)
Calculus nerds will recognize dYdX as a play on the word for “derivatives,” which is exactly what dYdX does. dYdX is a decentralized derivatives exchange, where users can deposit funds and trade with leverage on derivative products without needing to KYC via a centralized exchange. Early users who used the dYdX platform were airdropped anywhere from 310 to 9,529 $DYDX tokens (based on trading activity), which at one point were worth over $27 per token. That’s right, big users of the dYdX platform were airdropped over $200,000!
This is easily the biggest airdrop that I could find, and even though I didn’t qualify I had heard of dYdX before the airdrop and I really wished I had used it beforehand. It was this airdrop that convinced me it was time to start focusing on qualifying for airdrops, and since then I have been using literally dozens of random platforms and tokens just for the chance at qualifying for an airdrop in the future.
Below the fold I’ll describe how to find potential airdrops, qualify for them, and what to do once you get them.
- First things first:
In order to qualify for airdrops, the first thing you’ll need is MetaMask, a browser extension wallet that works for Firefox, Brave, or Chrome. This is your primary interface to the decentralized world. It is an essential must-have for anybody looking to use decentralized exchanges, farm airdrops, or play games in the Metaverse. There are other browser wallets out there that are arguably better (Rainbow.me is a fantastic example) but very few sites support those wallets, whereas nearly 100% of crypto websites support MetaMask. Just get it.
Once installed, you’ll need to follow the instructions to create a wallet. Save your seed phrase and password somewhere safe, and never share it with anyone, ever! Afterwards, my recommendation is to make multiple wallets within the application. You can do this by clicking on the little fox icon in your browser and then click on the colored circle in the top right corner of your wallet. From here, you should see a menu that says “Create Account.” You can make any number of wallets, but I suggest having at least two: one that acts as your “hot wallet” that you use to connect to websites and exchange funds and buy/sell NFTs. The other will be your “cold wallet” that you only send/receive money from directly, but does not ever connect to any website. For additional security, you can buy a hardware wallet such as Ledger or Trezor and connect it to a new MetaMask wallet, which I highly recommend doing if you’re storing more than $1000 worth of crypto. It is slower to work with and is bad for using as a hot wallet, but it’s fantastically secure as a cold wallet option.
2. Determine where the airdrops are likely to occur
It is important to understand that you’re very unlikely to receive an airdrop from a protocol or project if they already have a token in circulation. Therefore, the first thing to recognize is that you’re looking for projects that don’t yet have a token of their own! This includes decentralized exchanges, NFT platforms, scalability solutions such as optimistic or zero-knowledge (ZK) rollups, and more.
One of the best resources out there for finding such projects is simply this website: https://airdrops.io/speculative/
Then, you should think about the type of platform or project and whether or not it makes sense for them to create a token. Does it make sense for a DEX to have a token? Well, they need to reward users in some way for staking their tokens and creating liquidity for markets, so yes, DEXs are highly likely targets for airdrops.
NFT platforms such as OpenSea and Shoyu are also somewhat likely candidates for airdrops, as they could create a system where you save on transaction fees by paying for the fee with a token instead of in ETH, so NFT platforms are moderately likely to have an airdrop in the future. They could also reward users with free NFTs, or non-proprietary tokens that other projects give to incentivize users to use a specific platform.
Scalability solutions such as rollup technology is also decently likely to have an airdrop. As we all know by now, Ethereum and other blockchains are inherently difficult to scale and get more and more expensive as more users get onboarded. Therefore, layer 2 technology (including rollups) are the next step for scaling blockchain to support millions (or even billions) of users. You can pay for fees in the native underlying currency (such as ETH) but if the rollup protocol wants to become community-governed, then it is likely going to use a token-based governance model and will therefore likely airdrop tokens to users.
There are many other different types of protocols out there, and I’m certain we’ll see dozens more airdrops in future, so be sure to check out the website above and start browsing for interesting protocols.
3. Qualify yourself for the airdrops
In order to qualify for the airdrop, it’s likely that you will need to use the platform in some way, shape, or form. Staking and creating liquidity at a DEX, or just making an exchange, is one way to qualify. Buying, selling, or creating an NFT on a certain platform is another way. Bridging via a blockchain interoperability platform such as Cosmos is another. The key is to USE the platform in some way to qualify. This will likely cost you fees in sending money back and forth, so the best thing to do is wait for low-fee periods on ETH before moving your money around.
It is common to reward people proportionally, so if you’re willing to eat the gas fees on ETH, if you have a solid chunk of change (say 4–5 figures or more) you have little risk beyond gas fees for using the protocol and then immediately moving on to the next. Swap your USDT for USDC via a new DEX, or buy an NFT and then immediately sell it again, or stake a certain amount in a liquidity pool and then use something like AAVE or Abracadabra to borrow against your staked position (be sure to manage risk properly) and use the borrowed funds to continue your airdrop farming until you get that airdrop. With the last example, it’s important that you be close to certain that there be an airdrop in the near future, otherwise you expose yourself to risk by staking for extended periods of time.
Let’s assume that you’ve gotten some airdrops, congratulations! You just won free money! Now what? Do you sell immediately, or hold into the future? It all depends on several factors.
First and foremost, you must consider the macro market conditions. Are we in a heated, frothy bull market where everything is going up? Is it a cold-weather bear market where nothing is moving? Or are we chopping sideways, where nobody knows what’s going to happen next? Let’s look at the following scenarios:
- Hot and frothy bull market: in this situation, it is relatively likely that many people are overly optimistic, and will hold (at least some of) their tokens in the hopes that it goes up in value. My recommendation in these conditions is to sell part of the airdrop (let’s say half) and keep the other half, checking the chart regularly to see if it’s dumping or pumping.
- Depressing bear market: in this situation it is EXTREMELY likely that people will be selling their tokens immediately to secure as much free profit as possible. However, you have two options: (1) if you are online when the airdrop occurs, I would sell it all immediately, otherwise (2) if you are late and you see it dropping like crazy, or it has already dropped, it might be prudent to wait a few hours/days for there to be a relief bounce before selling. The strength of the bounce will tell you how long to wait before selling.
- Sideways chop: this situation is trickiest, but my suggestion is to sell it all and then watch the chart to see if it starts to go up again. You can always re-enter the market if the chart looks good!
Finally, there’s one last option you can do that is high risk but VERY high reward, and is only for highly advanced users: you can take the airdrop and provide liquidity in a DEX for high fees and yield. Let’s make an example. In this scenario, you get airdropped $10,000 worth of token X. You will then want to take $10,000 of another popular trading pair token (ETH, USDT, USDC) and create a liquidity pool on Uniswap or Sushiswap for these tokens. In this scenario, you’re providing liquidity for people to sell their airdrop, or buy the airdropped token for whatever reason. Because the token is brand new, it is highly likely that there will be relatively low liquidity on a decentralized exchange, meaning that if you stake your tokens in the LP you will be receiving enormous amounts of fees and loads of profits.
However, this above scenario is very short-lived — you’re looking at a time frame of a few hours to a few days at most. But in the meantime you can easily make ridiculous profits, at the risk of losing at least half of your money (remember that impermanent loss and opportunity cost are very real in the cryptosphere). If you don’t know what LPs are, or what impermanent loss is, then I don’t recommend this strategy. Again, this is for advanced users only!
Anyways, I hope that this serves you well as a guide for farming airdrops and claiming that free money (minus gas fees)! I definitely have a strong feeling that Q4 2021 and Q1 2022 will be full of new airdrops, and early users of novel protocols will profit enormously from these airdrops.
Happy airdrop hunting!
