Dividends are a common way for shareholders to generate passive income over time where large corporations and public companies distribute a portion of their profits. With the advent of blockchains, asset tokens and the token economy, this process can not only be imitated, but used in completely new ways.
This article explains what an airdrop is, the advantages and disadvantages of airdrops and the differences and similarities to dividends.
Executive Summary
- Dividends refer to the distribution of a company's profits to shareholders, usually in cash or additional shares of stock.
- Airdrops refer to the distribution of a cryptocurrency or token to a large number of wallet addresses.
- Airdrops are typically associated with cryptocurrencies, whereas dividends are associated with traditional stocks.
- Airdrops are usually given for free, dividends are paid for ownership in a company.
- You can use the airdrop functionality to distribute dividends, more shares or other tokens to incentivize behavior.
What is an Airdrop?
In a historical context, the name refers to airplanes that drop things like flyers, packages, or other cargo as they fly by. Similarly, certain users of a blockchain (i.e., public addresses) receive cryptocurrencies or tokens out of the blue. Sometimes unsolicited, sometimes they have to sign up for them in advance or use a specific protocol in its test phase.
In the process, the issuers—usually the developers behind a project—do not give away cryptocurrency out of charity. There are strategic considerations behind this practice and as the cryptocurrency market continues to professionalize, with DeFi and NFTs becoming increasingly important issues, airdrops are also constantly evolving.
It has become simple to use airdrops as a tool because blockchains like Ethereum rely on protocol standards (e.g., ERC-20). This not only makes it possible for blockchain savy startups to distribute all kinds of tokens (e.g., digital currencies or governance tokens) but for more traditional companies too (e.g., using asset tokens or distributing dividends).
Why should you use airdrops (10 reasons)?
There are many reasons to use the airdrop feature, especially for small and medium-sized companies and startups. Most of the time, they fall into the category of profit distribution, marketing or awareness generation for a project.
To make things easier, we have created a short list of the top 10 reasons why your company may use airdrops:
- Increase brand awareness and create attention
- Increase engagement
- Increase security
- Build a community fast
- Reward early adopters
- Exclusive rewards for participating in an event or for raffles
- As a reward for completed tasks (e.g., sharing a post on social media)
- As an incentive for investors to use a platform or service
- Distribute the dividends digitally
- Distribute additional shares
Now let’s highlight two of the cases using practical examples.
Increase security through tokenized shares and airdrops
Consider so-called "bounty airdrops". These airdrops are rewards for certain activities or tasks that use a token and smart contracts associated with a project. These tasks include, for example, finding bugs in publicly available code (i.e., a bug in a smart contract).
In combination with tokenized assets, companies can use their own security tokens (i.e., asset tokens) instead of any other random token to incentivize positive behavior.
For example, you can offer your own shares to potential hackers in order to give them a share in the company's success. Hence increasing the likelihood of turning them into white-hat hackers and working for instead of against you.
Pay dividends with airdrops
If private companies pay dividends they usually do that more often than public corporations—on a monthly basis for example.
Oftentimes these dividends are paid out in cash. In some cases, however, they are also paid in additional shares. Either way, the process of handing out dividends on a monthly basis to a larger community of investors can be a painstaking experience. This is especially true in the earlier phases of a startup, when everybody does everything and no time must be wasted for such things.
That’s where airdrops come in handy. Considering that all shareholders possess a wallet, you can simply airdrop dividends and shares to all the investors in just one click from your dashboard. This distribution can take place on a “per share” basis or any other scheme specified by the administrator (more on the specific steps to take below).
Pros and cons of Airdrops
As should be clear by now, airdrops are an exciting new technology for companies and a pleasantly unbureaucratic way for investors to increase their portfolio of cryptocurrencies or tokenized shares. But this method doesn't offer advantages only and it is important to weigh up whether it is worth using it or not. Here is a quick list of the many pros and cons for airdrops:
Advantages
- Airdrops are flexible, unbureaucratic and easy to use.
- Especially outside the crypto space it is a way for startups to stand out from the crowd.
- Cryptocurrencies or asset tokens can be distributed fast and proportionally to specific users and investors. You don’t have to know a name. A public address of a wallet is enough.
- No IPO is necessary
- Possible for shareholders to earn a return even without an exchange
- Different strategic use cases (e.g., user engagement, loyalty programs)
Disadvantages
- Need to download a wallet for cryptocurrencies
- Difficulties with handling cryptocurrencies and wallets (Our tutorials for investors might come in handy here)
- Some investors may collect airdrops and then do nothing with the token (i.e., don’t care much about the company they are invested in and rather just profit from the potential upside).
- Bad reputation of cryptocurrencies among some investors.
How to get an airdrop as an investor?
In order for investors to get an airdrop, they need a wallet and some time to interact with a protocol (e.g., the Brokerbot of your company). The specific actions investors need to take are either communicated in the community chats or explicitly stated on a project's website (i.e., the investor relations page). But be aware that the world of blockchain is evolving quickly and some things might change. An easy way to stay up to date is by subscribing to our newsletter.
How to distribute tokens via airdrop as a company?
In order to distribute your tokens via airdrop you will need to have a dashboard and a digital shareholder register (you can create and use the shareholder register for free) and some shareholders that have bought tokenized shares from your Brokerbot with their wallet.
If these conditions are met, you can log in to your dashboard, navigate to the “Accounting” section and click on the tab that says “Assets”. Then you can select the type of tokens you want to distribute and specify who will get these tokens. This can be done by uploading an excel sheet or by pre-filling the data with existing shareholders in a few clicks. Lastly, you can also add addresses manually.
By creating an allowance and signing the proposal with your multisig, you can then distribute tokens to many shareholders all at the same time.
