News // 8th December 2020

Airdrop Investor FAQ

Noting the persistent popularity of airdrops as a marketing strategy for bootstrapping nascent crypto networks, CoinShares would like to clarify to our clients what exactly an airdrop is, and how it might affect holders of our Exchange Traded Products (ETPs).


What is an Airdrop?

CoinShares defines an airdrop  as the distribution of tokens of a new network, often proportionally, to existing owners of tokens on another well-established network.  Generally, the new networks will copy the publicly available ownership database of the more established network at a specific point in time and distribute the new tokens accordingly.


Why do Networks Use Airdrops?


Airdrops are often done to take advantage of some of the network effects created by the more well-established network. The hope being that the prospect of a new ‘free’ token will entice users of the other network to also start using the new network.


Airdrops are often part of a broader promotional activity and although airdropped tokens are being sent for ‘free’, they often demand the performance of small tasks, such as posting about the currency on a social media platform.


How do Airdrops Compare with Hard Forks?


In contrast to hard forks, an airdrop does not necessarily fork the blockchain (the transaction record) of the old network, nor is the new network necessarily in any way similar in functionality to the network from which the ownership database was forked. It is often only a single ownership snapshot that is copied.


Although not a perfect analogy, a hardfork can be likened to a company splitting into two competing companies, both pursuing the same lines of business as before, where shareholders retain the same proportional ownership they had of the pre-split company in both post-split companies.


An airdrop on the other hand, is more akin to a company spinning off a new business, not necessarily pursuing the same lines of business, where shareholders retain the same proportional ownership they had of the pre-split company in both post-split companies.


How will CoinShares treat Airdrops?


An airdrop, like a hard fork, is defined in the prospectus as a “transformation event” and will be evaluated on a case-by-case basis by the Calculation Agent. Amongst other things, evaluating regulatory requirements, operational feasibility, as well as costs and expenses, to determine if there is a potential net benefit to the holder of the ETP of a course of action. Further details can be found at pages 68-69 of the English language prospectus.

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