The world of crypto is expanding rapidly and more projects that you can count are sprouting every day. Established cryptocurrencies like BTC, ETH and XRP are already known to the masses and their adoption is growing. New currencies and projects can have a hard time finding their place under the crypto sun.
Project teams can take various approaches to push towards adoption. Some methods are more effective than others and they strive for different goals. This blog will explain how you can participate in new projects and be an early adopter of a new currency or a supporter of a new project.
announcementGateHub does not endorse any specific project even those mentioned in this blog and strongly encourages you to do your own research before dealing with any new currency.
These come with different names and forms. We saw a frenzy of Initial coin offerings (ICOs) in 2017. An ICO is a fundraising method employed by new crypto projects to raise funds for future operations and distribute tokens that can be used in conjunction with some products.
This is an ideal scenario. You should know that historically, many ICOs have failed to deliver on their promises and their tokens decreased in value significantly.
ICOs work in a similar fashion to IPOs, where investors invest money in exchange for a set amount of new tokens (in IPOs they buy stocks). A standard example of an ICO from 2017 was that investors could get new tokens in exchange for ETH via smart contracts on the Ethereum network. ETH was deposited to a smart contract and they would automatically receive new tokens to their Ethereum address immediately or at a set date in the future.
ICOs turned out to be an efficient way of collecting funds to kickstart a new project. It was also exploited for malicious purposes with empty promises in some cases but in general, the concept was successfully tested and employed and many ICO projects still operate today.
Some projects choose to hold a different type of sale for a closed circle of investors. These investors can be individuals or institutions and most often there is a minimum investment requirement. Presales are also often completed in rounds with decreasing discounts and possibly a wider audience.
A presale is often followed by the main sale that is usually public and can take the form of an ICO. These types of sales can be disadvantageous to individual investors as prices tend to fall after the end of sale due to selling pressure from the presale holders.
Some projects have introduced vesting schedules, which basically means that early investors and the team are obligated to hold their tokens for certain periods of time before they are allowed to sell them on the market. This can prevent sudden price movement right after the sale has ended but does not necessarily mean that prices won’t be affected after the tokens are released for sale. It relies on the stabilization of price and product adoption by the time tokens are unlocked.
Airdrops are a special type of crowd sale where new tokens are given out for free under certain conditions. Initially, airdrops on the Ethereum blockchain were performed by sending tokens to holders of ETH with the intent of boosting adoption of a new token. This approach can backfire because airdrops usually drop in price soon after the distribution because many receivers immediately sell the new tokens.
Airdrops are used to promote awareness of a new currency or project. These can also come in different forms. Most airdrops that we know of distribute new tokens proportionally to the holdings of a certain token in a wallet like ETH on Ethereum and XRP on the XRP Ledger.
Airdrops on the XRPL
The XRPL offers a unique opportunity to issue new tokens in a seamless and simple manner compared to Ethereum.
The Ethereum blockchain utilized smart contracts. The strength is that there are, in principle, no limits to the applications on Ethereum. The drawback is that coding on Ethereum is not trivial at all and wrongly implemented smart contracts can result in significant losses (see the DAO attack).
On the XRPL, creating a new asset is a trivial affair. This can be problematic because creating assets for malicious purposes is simple and cheap. On the flip side, projects can be kickstarted quickly and have a robust out-of-the-box infrastructure ready in no time and focus on the business end and product delivery.
Every airdrop on the XRPL requires the would-be receiver to create a trust line for the new asset. The airdrop can then be performed based on various criteria. The most prevalent criteria are:
- Trust line - the account must trust for the new asset in order to receive it
- Account age - the XRPL account was created (funded) before a certain date
- XRP balance - the airdrop amount depends on the XRP held at a certain date
Some airdrops on the XRPL were what we like to call “fair airdrops”.
The term comes from “fair launch” used in the crypto industry for blockchains that started off with a fair environment for all users. BTC had a “fair launch” as it was possible to start on level footing with all other participants. Every participant on the network was equal to all others and could mine new coins and nobody started off with more tokens than other participants.
In a fair airdrop all participants receive the same amount of new tokens. An example of this is the recent ELS (Elysian) airdrop by Aesthetes on the XRPL.
There is a heap of new projects being built with the help of the XRPL. Participating in airdrops on the XRPL with your GateHub wallet is simple. Learn how you can add custom and non-standard currency trust lines on your GateHub wallet here.
announcementGateHub does not endorse any project on the XRPL. Creating a trust line on your wallet does not expose your wallet to any risks but requires an additional 2 XRP reserve per trust line. Please be aware that participating in airdrops can subject you to tax obligations in your jurisdiction.
The case of Flare, Spark and Songbird
Flare is a unique case in the cryptocurrency space. The project aims to marry the advantages of the XRPL ecosystem with the advantages of the Ethereum blockchain.
The goal in simple words is to use a consensus system similar to the XRPL and utilize smart contracts as offered by the Ethereum Virtual Machine (EVM). This makes the network more efficient than Ethereum in terms of speed and costs and more flexible than the XRP Ledger with the option to utilize smart contracts. Flare Finance is a separate entity that will offer additional DeFi products on the Flare network.
The case of Flare is unique because it uses the state of the XRPL to launch a completely new network. It can be considered an airdrop but it’s a bit more complex.
To recap, Flare made a snapshot of XRP balances on Dec 12, 2020 and a snapshot of accounts with a Flare address in the message key of these accounts on Jun 12, 2021. Flare will use this to create a new network where the Flare addresses in the message keys on the XRPL will be used to kick off the network. New tokens will be “pre-mined” in all of these addresses.
Songbird was created to test this setup and used the same mechanism. Users that participated in the Flare snapshots on the XRPL are now eligible to receive Songbird and Flare (Spark) when it launches.