Crypto giveaways return with many of same old risks

The crypto world is abuzz with tales of the virtual fortunes made and lost in recent weeks from the giveaway of ApeCoin, the cryptocurrency tied to the popular Bored Apes NFTs.

The 150 million “airdrop” of tokens to collectors of the Bored Ape Yacht Club and Mutant Ape Yacht Club projects may seem like a novel way to keep the excitement around the nonfungible tokens (NFTs) going. But it’s a long-time practice in the digital world. And one that doesn’t come without potential pitfalls once the euphoria fades.

Airdrops have “proven to be a very effective tool for building community and momentum around a project,” crypto trading data firm Kaiko wrote in its newsletter. “However, airdrops are not without their risks.”

The historical performance of airdropped tokens is mixed. Short-term prices of tokens have spiked – followed by a steady decline – after airdrops by major crypto projects including ApeCoin, decentralised exchange Uniswap, and the distributed naming project Ethereum Name Service, according to data compiled by Kaiko.

ApeCoin rose about 7 per cent to $13.30 over 24 hours, according to CoinMarketCap.com data. An initial giveaway of about 30 per cent of the coins was conducted March 17. The amount in circulation will increase at regular intervals over a 48-month period, raising the risk of diluting the value of the tokens awarded earlier. After Uniswap’s airdrop in September 2020, the price of its UNI token rose to as high as $7.82 before it lost more than half its value over four days, according to CoinGecko data. UNI’s price remained below the $7.82 high until January 2021.

Large investors and creators of the project have been the big winners of the ApeCoin distribution. When the coin was launched, venture capital firms Andreessen Horowitz and Animoca Brands were part of a group that received a collective 14 per cent of the drop, equivalent to about $2bn at prevailing prices. “I don’t think it’s wrong for founders and investors to receive some profit but how much they should receive is up for debate,” Thomas Dunleavy, a senior analyst at crypto firm Messari, said.

The initial distribution of ApeCoin was designed in part to address some of these concerns. An Ethereum address labeled as dingaling.eth received 1.4m ApeCoin tokens, the most among all holders that participated in the airdrop, according to blockchain data firm Nansen. Data show that dingaling.eth and a few other top ApeCoin addresses sent a large amount of their ApeCoin to Uniswap to provide liquidity.

This shows large ApeCoin holders are “optimistic” about its future, Martin Lee Poh Xin, a data journalist at Nansen, told Bloomberg. Holders decided to stake the tokens to an exchange to provide liquidity and earn rewards, instead of dumping them on the secondary market, he noted. More than 31,300 unique addresses on Ethereum have claimed their ApeCoin tokens, according to Nansen.

ApeCoin is projected as playing a vital role in an anticipated metaverse project by Yuga Labs, the creator of the BAYC. ApeCoin will be the currency of the “Ape ecosystem,” while providing its holders the right to participate in the governance of a decentralised autonomous organisation called ApeCoin DAO, according to its website. “It remains to be seen whether or not this is successful,” Messari’s Dunleavy said. But ApeCoin “certainly has momentum and clout other projects did not.”

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