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When I first heard about airdrops I thought, ‘hey that’s cool, I get free tokens’ I didn’t think much more about it until I told a friend about it. He said ‘Why would they give away free tokens? That doesn’t make sense they won’t be worth anything.’

You see, an airdrop, is when a company or dapp just gives away a portion of their tokens for free to the token holders of an underlying blockchain. Normally this happens on ethereum and usually it’s done by company that is building their dapps on top of ethereum.

Sometimes it’s done by sending free tokens to everyone who holds ethereum. Sometimes you have to both hold ethereum and register in some way. Some airdrops use this as a way to get you to share their project by requiring social shares or they use it to build their email list by getting you to sign up with your email.

After a while I started to think that really these airdrops are just a marketing gimmick and maybe my friend was right. They won’t be worth a thing. From then on I kind of just ignored airdrop news that I heard.

However, I recently started to change my mind. Especially when it comes to EOS.

There are a lot of dapps coming to EOS that plan to do airdrops. Everipedia is the most notable right now. Check out episode 2 of this podcast to hear more about that.

Here’s what changed my mind about airdrops.

Block One is giving $1 Billion to Venture Capital firms to fund EOS based dapp startups. Many of these dapps will have tokens. But they won’t need to raise money because they will have gotten millions in startup funding from these VCs. Step back, take a moment and think about this. Eventually, this hit me like a ton of bricks!

The monetization model of these dapps is to airdrop tokens and provide value with their platform which requires tokens to run. That will create demand for the tokens and therefore a price. When they do the airdrop, however, they will reserve a portion of the tokens for themselves. That right there is where they make their money.

Let’s talk about an example:

Let’s say a dapp gets $30,000,000 in VC funding and they do an airdrop with 1,000,000,000 tokens. But they keep 10%, or 100,000,000 tokens for themselves. Their dapp can then take off in two different ways.

1 – People could speculate on the price of the tokens and drive up the price before the dapp actually gets much adoption. The dapp creators could then sell off their tokens and it’s pure profit. Or, more likely…

2 – The dapp gains popularity and is used widely enough that the demand for tokens grows and is stable. dapp creators and their investors can sell their tokens for a profit.

Actually, it will probably be a combination of the two.

But let’s just say that the token becomes worth $0.80 and is relatively stable there. That means that the dapp creators and investors now make $80 Million which is a $50 Million dollar gain.

But, someone might say, why would the token actually gain a price of $0.80 without doing and ICO?

Think back to bitcoin. Bitcoin never had an ICO. It started out and people were literally just giving it away to try to get the word out. I remember using so-called ‘bitcoin faucets’ back when I first heard about bitcoin. A faucet would be a page where you enter your wallet address and they would give you something like 0.1 btc just because. Of course, most of them also had ads on the site.

Why couldn’t this also happen with airdrop tokens? Airdrops are essentially massive token faucets.

There’s one last point that helped me see the huge power of airdrops. I started to see more and more ICO’s getting cease and desist letters from the SEC. You see, doing an ICO is politically risky because of the regulations involved. It requires a lot of legal fees to do it right.

Doing it legally also limits your token holders to wealthy individuals who are just trying to speculate on the price and not planning to actually use your application.

Raising funding from VCs, doing an airdrop and reserving tokens for yourself seems to be much more legally feasible and more likely to get your application to mainstream adoption than doing an ICO. This airdrop model is like a reverse ICO.

Here’s the kicker though…

By holding EOS tokens, I will be able to participate in this $1 billion dollar VC fund without having to be an accredited investor and without having to do much of anything. It makes life easier on everyone involved!

It’s kind of funny. ICOs were so huge because they temporarily side-stepped government regulation. Now, at least in the US, the regulators are catching up. Airdrops done in this manner, however, appear to be a way to side step the regulations in a more permanent way. At least until they pass new legislation in the US.

The power of the EOS airdrop is currently being overlooked and it took me quite a while to realized it. I hope this podcast helps you to understand it better. Down the line I will be interviewing more and more dapps, many of whom will be doing airdrops, so be sure you subscribe to the podcast so you don’t miss out!

Thank you for joining me today in Exploring EOS!