Pennies from heaven, who doesn’t like them? Especially when it comes to magic pennies, raining down from a cryptographic sky, bearing the promise to increase in value as time progresses.
This isn’t just the latest geeky Sci-Fi-inspired fantasia show killing it at Comic-Con, but rather a serious financial instrument, burgeoning in the always exhilarating blockchain space. It’s called an Airdrop, and it describes a mechanism through which a blockchain startup distributes its tokens, or virtual currency, to a large number of random people for free.
Here and there you’ll be kindly asked to post about the event on social media, but overall, Airdrops are massive distributions of value-caring cryptographic assets, free of charge.
Airdrops are not a new phenomenon. We have seen blockchain companies hand out their tokens for free before. Normally this would happen shortly after, or sometimes before these entities offered their tokens in a public sale, or Initial Coin Offerings (ICOs).
In 2017, ICO sales grew to astronomical proportions, in some cases reaching $153 million. With such figures, free handouts act mainly as a marketing stunt, designed to increase followership and to support the overall fundraising operation. 2018 Airdrop campaigns, however, tell quite a different story.
The amount of blockchain startups skipping the ICO phase entirely, limiting their public token distributions to free Airdrops is steadily growing. $60 Million heavy Polymath didn’t raise a dime from the general blockchain-public. The same goes for M&A marketplace LEXIT, refuting ICO rumors and limiting public participation to a “Community Airdrop,” joining ventures such as trading-community Rublix.
What most of these projects have in common is evidently a solid influx of private investments, but maybe more importantly – they all balance on the lip of a highly regulated volcano. Polymath seeks to trade securities on the blockchain, LEXIT allows entrepreneurs to buy and sell entire companies and their assets, while Rublix lets you trade sensitive financial data.
Projects of this kind are like candy for activist regulators, even without involving the unregulated public sale of a new kind of asset, which may or may not be a security, depending on who you ask and in which way the wind blows today.
It comes as no surprise that these established projects, which have managed to raise considerable private funding, are more than happy to skip their anticipated “public rounds” and hand out tokens to the public for free – an act that will probably remain legal, even if ICOs get regulated out of existence.
However, go over the long list of new Airdrop offerings to see that even smaller players start to prefer this less dangerous route, even if it means losing the opportunity to raise unbelievable sums of money.
The young blockchain space amazes the startup industry with its dynamic changes, happening incredibly fast. Merely a few months ago ICOs were all the rage, while at the moment some crypto-insiders might recommend staying away from unfunded projects and to skip the ICO phase, at least partly.
This, of course, raises two questions: one, where does all this “private money” come from? and two, why hand out tokens for free if you can sell them privately, no strings attached?
The answer to the first question again highlights the rapid changes in the blockchain space: the money comes from a loosely-affiliated network of dispersed blockchain enthusiasts; crypto markets have evolved into a maturing industry, comprising investment funds, market-makers, “institutionalized investors,” and all the jazz that makes boring Wall Street tick the way it does.
The answer to the second question is slightly more tricky: free tokens don’t yield returns or dividends the way stocks or bonds would, so their value relies entirely on the activity of secondary markets. The moment a blockchain startup matures, and its tokens become a means to unlock a certain utility, this changes to a large degree, but until then, and for private investors to sleep tight, they are dependent on demand and liquidity provided by public activity on token-exchanges. Airdrops create this activity.
This, then, raises further questions. The blockchain industry was borne of a sentiment, disparaging the ways of Wall Street “institutionals” while praising the dispersed wisdom of the crowd. ICOs were one of the means through which this sentiment was realized.
Are these days now over? Is Crypto becoming just another industry, dominated by leviathans controlling highly consolidated markets, with the public picking up oddments from the floor? Well, partly, but not so fast.
The public, or “the community” as it addressed in this sector, still has a vital role in blockchain projects. Most of them still rely on network effects, some of them are open-source, and all of them would be pretty worthless without a large followership.
The willingness of compliant projects to throw their tokens around, and lose potential private investments, isn’t just manipulative market-making. Airdrops as a public distribution mechanism signify that the public plays an ever increasing role in these startups, and that this role is important enough to be set on a payroll.
So then, will ICOs disappear completely and morph into Airdrop-like handouts? Well, probably not, but at the moment it appears that the public will follow projects that have raised considerable private funding, seek to raise less impressive sums publically, and perform the rest of the necessary distribution via Airdrops and various loyalty schemes.
One thing however remains certain – never before have corporations donated their financial assets to random strangers only to secure their existence. This as a tendency alone would probably justify the colorful craziness this industry never tires of producing.