Is Participating in Crypto Airdrops a Valuable Investment of Your Time?
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Consider a scenario where OpenAI, a renowned AI company, decides to go public. In this hypothetical situation, OpenAI introduces a special offer: every early adopter of ChatGPT, its flagship product, will be granted complimentary shares in OpenAI upon its initial public offering (IPO).
This enticing proposition would undoubtedly attract numerous individuals, including those with no prior experience in stock ownership, to sign up for ChatGPT solely to benefit from the free OpenAI stock. The decision to participate becomes a straightforward one.
While such a strategy would undoubtedly lead to a surge in user acquisition for AI startups, it raises pertinent questions regarding the authenticity of these users. Will they engage with the platform beyond acquiring their free shares? Moreover, there is concern that these users might immediately sell their shares post-IPO, potentially exerting downward pressure on the stock price in the long term.
From the users’ perspective, the question arises as to whether the effort expended in participating in these airdrops is truly worthwhile. While leveraging various AI platforms to potentially earn shares presents an opportunity for learning, it also entails a significant investment of time and energy.
Crypto Airdrops: Navigating Regulatory Hurdles Creatively
In circumvention of regulatory constraints imposed by the SEC, the crypto industry has devised a clever solution known as “airdrops.” Since selling company shares outright without SEC registration is prohibited, crypto “companies” opt for airdrops, rewarding early users with free tokens in the future.
The anticipation surrounding a potential airdrop from a crypto company generates significant buzz, attracting more users and fueling momentum. Upon the eventual token launch, these early users are duly rewarded with tokens.
Subsequently, these tokens can be promptly traded on decentralized exchanges, swiftly establishing a market for the new token without the need for traditional stock exchanges like NASDAQ.
Concerns may arise regarding the founders’ motives and the sustainability of these crypto companies. If an IPO serves as an avenue for founders to cash out and indulge in luxury, how do founders of crypto ventures acquire similar wealth? Moreover, how do these companies sustain operations?
Rest assured, the bulk of tokens is typically allocated to the founders through reservations or airdrops, alongside a company treasury set aside to cover future expenses. This ensures the founders are adequately compensated while maintaining the company’s financial stability.
Airdrops: Generating Hype and Acquiring Users
Airdrops serve as potent tools for attracting fresh users, particularly beneficial for crypto companies already gaining some traction.
Operating on whispers and speculations, the mere mention of potential airdrop signals to users: “Take action now to secure future rewards.” However, once the airdrop concludes with the token launch, there’s a risk of users vanishing, cashing out their rewards, and never returning.
This dichotomy highlights a disparity in user quality: airdrop participants are primarily motivated by monetary gain, distinguishing them from genuine, engaged users.
From the crypto company’s perspective, airdrops essentially represent an investment in acquiring early users, akin to a marketing expense termed Cost Per Customer (CPC). However, unlike conventional marketing expenses, airdrops entail diluting the company’s shares.
Nevertheless, airdrops prove effective in mobilizing a surge of early users, potentially bolstering the initial token price and paving the way for founders to acquire their coveted Hamptons residence.
IPOs: Establishing Ownership
While airdrop participants acquire shares through time investment, shareholders obtain their shares through monetary investment.
Consequently, the IPO model is often perceived as superior for companies, markets, and society at large. However, executing an IPO is prohibitively expensive and inefficient.
Hence, many crypto companies opt out of this route, especially considering the availability of alternatives offering comparable outcomes at a fraction of the cost.
Both models present their advantages and drawbacks. Yet, an ideal solution would entail a legally sanctioned blockchain IPO, offering reduced expenses and bureaucratic hurdles compared to traditional IPOs. Achieving this requires legislative action from Congress.
Regarding the legality of airdrops, they were devised as a workaround for securities laws. By distributing tokens for free rather than selling them during an initial token launch, they purportedly evade SEC scrutiny. However, this exemption may not hold true, as highlighted by Bloomberg Law.
Should the SEC choose to crack down on airdrop cryptos, token prices could plummet, and the airdrop market could collapse overnight. Despite this uncertainty, “airdrop farming” is generally considered safe for investors, albeit with the usual risks of scams and hacks, particularly on lesser-known crypto platforms.
For those with the time and inclination, participating in airdrop farming on reputable platforms can even serve as an educational investment opportunity.
