Imagine getting $1,000 just for joining a newsletter.
Well, thatâs effectively what happened for those that subscribed to Onchainâs mailing list early on in the projectâs lifecycle. The company, which is building a distributed network designed to connect real-world institutions, gave 1,000 of its âONTâ crypto tokens to people who signed up to receive its emails prior to a certain date.
Those crypto tokens were distributed earlier this month and are now trading for a little over $1 per coin, according to CoinMarketCap. As you may have noticed, there was no âsaleâ involved.
âOntology just raised a private round and then didnât need to do a [public] crowdsale, so they just airdropped to eager NEO hodlers,â Keld van Schreven, a partner at blockchain investment company Kryptonite1, told CoinDesk.
Van Schrevenâs comment speaks to a broader trend among token issuers. More are raising the money they need in private initial coin offerings (ICOs) and then skipping the public sale for whatâs being called an airdrop. Effectively, these are just token giveaways to broader interested community members
Justin Schmidt of Translunar VC told CoinDesk:
âAs a non-accredited investor, it is proving to be very difficult to find public sales to participate in until the tokens are traded on an exchange.â
Whereas the idea around public sales was that the people who buy in are those that understand the platformâs value and will promote the token, airdrops look to accomplish a similar goal, yet expecting that if people hold tokens, theyâll be interested in seeing the network, and the tokenâs price, grow and promote the platform just the same.
An internet search for âairdropsâ or âfree tokensâ yields lots of websites, subreddits and Telegram channels that people can follow to gather up crypto tokens. And thereâs even a Pokemon Go imitator under development that would allow companies to distribute free tokens to people playing an augmented reality game.
But these airdrops might not only be about building a community, they likely also have something to do with an uncertain regulatory environment.
For instance, in the U.S., many ICO issuers and investors have become convinced that the Securities and Exchange Commission (SEC) will eventually declare that all crypto tokens are securities and as such, need to be registered under cumbersome laws.
But even outside the U.S., completing know-your-customer (KYC) and anti-money laundering (AML) compliance for public sales takes a substantial amount of work and time.
Speaking to token issuers stepping away from public sales, Minhui Chen, a partner at Global Blockchain Innovative Capital (GBIC) told CoinDesk, âRaising money from private sales is so easy.â
According to Jun Hasegawa, CEO of Omise, the company pioneered the airdrop concept on ethereum in August last year, after announcing it would airdrop its âOMGâ tokens to every wallet that held more than 0.1 ETH.
Omise decided to conduct an airdrop to raise awareness about the project, but Hasegawa spoke to the broader benefits of the distribution model, writing in an email to CoinDesk â via a spokesperson, âThe real value of ethereum projects doing airdrops to all ETH holders is that itâs a crypto economic mechanism designed to incentivize ethereum project communities to maintain alignment with the entire ethereum community.â
The OMG tokenâs price has since been volatile (many crypto tokens are), but it has trended up overall.
Yet because of the ease to airdrop, many, including van Schreven, think crypto wallets are starting to feel âlike spam in email.â
Indeed, in China, many people refer to these offerings as âcandy,â Chen said, continuing:
âLow-quality projects are taking advantage of airdrops to make a fake community.â
And Schmidt echoed that, saying, âNot having the choice to decline these airdrops can, in my opinion, cause some issues in the future.â
As such, many investors, who nonetheless support the larger phenomenon also believe the mechanism could be used more effectively.
Brayton Williams of Boost VC, a fund that favors crypto projects with a strong focus on community, thinks issuers could do a better job of targeting with airdrops. For example, heâd like to see issuers focus airdrops on people based on geography, demographics, etc. to cultivate the best market for the future platform.
Williams told CoinDesk:
âAirdrops combine the best of paid referral programs with stock options. Potential users get paid for joining or using the network and have the potential upside if the network increases in value.â
Some crypto companies are taking heed of this advice.
Swarm, a blockchain for tokenizing private equity, just announced a few airdrop promotions, two of which encourage referrals, although by far the largest token sale on the platform is one that just drops tokens to existing cryptocurrency holders.
And Earn.com (formerly 21.co) has offered a standalone product for startups to distribute tokens directly to its members since the end of January. Startups that want access to Earn.com members pay small amounts of bitcoin to get users to sign up. But many are willing to pay a fee since the company validates every member, linking a wallet to one distinct person.
âThe unique thing that Earn.com offers really is the validation side of things,â Dave Bean, from Earn.comâs sales team, told CoinDesk.
He added that while many platforms that allow token issuers to airdrop might have a lot of email addresses, many individuals could be gaming the system by signing up multiple times with different addresses.
That said, issuers in the U.S. are still skittish about doing airdrops to promote platforms.
Stream, a blockchain-based video streaming platform, has delayed its airdrop indefinitely because of concern that airdrops could also be in violation of securities law.
âWe canât be sure,â said Todd Kornfeld, counsel at the law firm Pepper Hamilton LLP, pointing to SEC actions from 1999 which targeted companies giving away free traditional equity.
âPerhaps the SEC thought there was some kind of quid pro quo in giving those securities away and that resulted in a benefit to the issuer,â Kornfeldt said. âAnd that fact pattern is similar to the fact pattern of an airdrop.â
This will definitely affect token issuers since the U.S. is the largest market both for investment and technology users.
But until the regulatory environment in the U.S. becomes more clear, token issuers may experience far less hindrance in the rest of the world.
Although some arenât letting the regulatory environment hold them back. For instance, Onchain isnât done using airdrops to promote its platform.
âThe next community reward opportunity will be for active participation in Ontology after the release of the mainnet in Q2 2018,â Daniel Assab, a spokesperson for the company, said. âIt wonât be for anything like a newsletter subscription, but no further details for now.â
Still many advise against airdrops for now.
According to Chen, âWe advise [token issuers]: Donât do airdrops. Please do public sales.â
In his mind, public sales actually engender a more authentic community. In other words, it brings in people who understand the project well enough that theyâre likely to actually hold some of the tokens they buy to use in the future, instead of just dumping them on price rises.
Schmidt tends to agree, but hedges saying:
âItâs very early to see how this trend will result, but I do believe you need the actual users to have access to the tokens.â
Balloons photo via Shutterstock.
UPDATE (16 April 11:07 BST): A previous version of this story attributed Hasegawaâs comments to Omiseâs spokesperson.