Why Crypto Startups Give Away Billions in Free Tokens

On 29 November 2024, a decentralised exchange called Hyperliquid distributed tokens worth over a billion dollars to roughly 94,000 people. The company had no marketing department, no advertising budget, and had never raised money from venture capital. It simply handed nearly a third of its total token supply to the users who had traded on it during the previous year. Within months the token had risen several times over, and some early users found themselves holding allocations worth more than a house.

To anyone outside crypto this looks like madness. Arbitrum did something similar in 2023, distributing over a billion tokens to 625,000 wallets. Uniswap started the trend in 2020. Dozens of projects have since given away sums that would fund a mid-sized company for years. So why do crypto projects do airdrops? The short answer is that an airdrop is not a gift. It is a customer acquisition strategy, a regulatory strategy, and a market-making strategy rolled into one, paid for in a currency the company prints itself.

Three Reasons That Actually Drive It

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The first reason is ownership. A token controlled by a small founding team looks, to a regulator, like a security. A token spread across hundreds of thousands of independent holders who use the product looks like something closer to a commodity or a membership. Distributing tokens widely before they trade is the cleanest way to make that argument, and projects structure their airdrops with lawyers in the room.