Glossary · A
Airdrop
The free distribution of a protocol's governance or utility tokens to wallet addresses that meet specific criteria — typically prior use of the protocol. Uniswap's 2020 airdrop (400 UNI per wallet) and Arbitrum's 2023 airdrop are among the most valuable in DeFi history.
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How Airdrop works in practice
Airdrops distribute tokens to addresses that used a protocol before it had a token, usually to reward early users and decentralise ownership at launch. They have also become a growth mechanism: users transact expressly to qualify, which inflates a protocol's activity metrics for as long as the expectation lasts.
Worked example
A protocol allocates 10% of supply to users who bridged funds before a cut-off date, weighted by volume and duration. A wallet that bridged $5,000 and held for six months receives more than one that bridged $50,000 for a day — a deliberate design choice to reward commitment over volume, and to make farming harder.
Figures are illustrative and chosen to be checkable, not live market data.
The mistake that costs people money
Airdropped tokens are usually taxable as income at the point you gain control, at the value on that day. If the price then falls before you sell, the tax bill can exceed the proceeds. Rules vary by jurisdiction — see our tax answers, and take advice.
Airdrop: common questions
- What is Airdrop?
- The free distribution of a protocol's governance or utility tokens to wallet addresses that meet specific criteria — typically prior use of the protocol. Uniswap's 2020 airdrop (400 UNI per wallet) and Arbitrum's 2023 airdrop are among the most valuable in DeFi history.
- How does Airdrop work in practice?
- Airdrops distribute tokens to addresses that used a protocol before it had a token, usually to reward early users and decentralise ownership at launch. They have also become a growth mechanism: users transact expressly to qualify, which inflates a protocol's activity metrics for as long as the expectation lasts.
- Can you give an example of Airdrop?
- A protocol allocates 10% of supply to users who bridged funds before a cut-off date, weighted by volume and duration. A wallet that bridged $5,000 and held for six months receives more than one that bridged $50,000 for a day — a deliberate design choice to reward commitment over volume, and to make farming harder.
- What do people get wrong about Airdrop?
- Airdropped tokens are usually taxable as income at the point you gain control, at the value on that day. If the price then falls before you sell, the tax bill can exceed the proceeds. Rules vary by jurisdiction — see our tax answers, and take advice.