This month’s CCI newsletter is going to do something a little different. On the second Thursday of every month we dive deep into a project and the ball is left in the investors' court as to whether they wish to enter it. 

For February, we are taking a more inclusive approach where you do not necessarily need to decide whether to part with your hard-earned on a project that aligns with your investment preferences. Rather, we will dive right into the often lucrative world of airdrops. 

This guide will take you through what an airdrop is, the risks you need to be mindful of, the history of airdrops, and to the part everyone is waiting for – how to go about qualifying for airdrops. 

The ‘what’ and ‘why’ of airdrops.

In our LayerZero fundamental analysis we briefly alluded to airdrops, and for many it may be intuitive.

In the plainest of terms, an airdrop is a one-way distribution of tokens to a target wallet address.

Delving further into it, airdrops are effectively a marketing campaign. Like a digital giveaway aimed at generating excitement and interest in a new crypto project.

As we are by now well versed in, blockchains are a transparent and open public ledger. In light of this fundamental feature of blockchains, it is remarkably simple for a new project or the blockchain/ledger itself to capture on-chain user activity on the network and allocate tokens accordingly. 

New projects don't directly profit from airdrops as they would from a token sale, but often rely on the collection of platform fees over time. Instead, airdrops offer several indirect benefits that contribute to the project's long-term success and potential profitability:

In a way, free tokens act as bait, attracting users and generating buzz. This can lead to more people buying and using the project's tokens in the long run following public launch of the token, potentially increasing the token's value and generating revenue for the project through transaction fees or other mechanisms.

Airdrops incentivize users to participate in the project's ecosystem, fostering a loyal community of early adopters who might provide valuable feedback, contribute to the project's development, and become future paying customers (through the fees accrued by the network from their activities).

As more users join and use the tokens, the project's network effect strengthens. The token becomes more valuable as more people use it, attracting even more users and creating a snowball effect that can benefit the project financially.

Moreover, airdrops are a cost-effective way to generate attention (whether from social media or other sources of crypto-related information) and positive sentiment around the project, attracting potential investors and partners. This community driven publicity can translate into real financial gains down the line for not only the projects, but for recipients of the token.

Finally, for those keeping watch of the regulatory implications for a number of projects, you are aware of the Howie Test for determining whether an asset purchased with the expectation of a gain is in fact a security. Airdrops are a clever way of circumventing this condition since it is not a market exchange through private sale or pre sale that users obtain the tokens, rather it is the use of their products captured by snapshots of the blockchain that determine how users receive their tokens. It is for this reason that the likes of Uniswap has on the surface escaped deeper regulatory scrutiny that one may otherwise expect since the initial distribution of the token took place through an airdrop.

The airdrops we will cover down below require users to complete tasks or share information, providing valuable data for the project's development, testing, and marketing efforts. This data can be used to improve the project, target marketing campaigns more effectively, and ultimately generate revenue. One may be inclined to be cynical on the ulterior motive of a project to generate revenue – however, this is critical to ensure that when an airdrop is distributed that it has value. After all, airdrops are not a guaranteed path to profit, and the airdrops themselves are often mired in speculation. The project's long-term success depends on various factors beyond just the airdrop.

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