Editors note: This article was updated on Dec. 16 to correct information about the roles of Ripple and Flare Network in the airdrop process.
After much anticipation, the XRP (CCC:XRP) airdrop occurred over the weekend, and now XRP is plunging. So what exactly is an airdrop? And what do investors need to know?
To start, investors should know that XRP is the third-largest cryptocurrency by value. Ripple Labs is the company and the controlling force behind the XRP tokens. Facing pressure to compete with its larger rivals, Ripple needed to do something to help it stand out. That is where the Spark (FLR) airdrop comes in.
Essentially, Ripple is adding Flare Network, a new protocol, to the XRP ecosystem. Flare Network will bring more support to owners of XRP tokens, specifically adding decentralized finance or DeFi functionality to the XRP ledger. As part of this, Flare Network has a native token, Spark (FLR). Over the weekend, any holders of XRP tokens received free Spark tokens. And after driving XRP prices up, it appears that the airdrop is now weighing on the crypto.
Still not sure exactly what this airdrop news is all about? DeFi functionality represents cutting out the middlemen from direct purchases, loans, betting, insurance and various other types of transactions. Decentralized finance is one of the biggest appeals of the crypto space — and up until now, most DeFi applications have run on the Ethereum (CCC:ETC) platform.
Now that XRP wants to differentiate itself, many bulls will likely appreciate that through Flare Network, XRP will be able to sustain smart contracts and bridge itself to existing Ethereum applications. For Ripple then, the Spark (FLR) airdrop is a way of kick-starting an important milestone.
What to Know About XRP and the Spark (FLR) Airdrop
With that in mind, here are 14 things to know about XRP and the Spark (FLR) airdrop…
- An airdrop is a way to distribute tokens as rewards or gifts.
- Specifically, crypto projects have been known to use these airdrops as a way to market themselves or attract new users.
- Importantly, Square (NYSE:SQ) also did something similar when it was building out its Cash App. Over a period of a few weeks, Square gave away cash as it built out its user base.
- Similarly, Ripple’s strategic investment in Flare Networks has given Flare resources to develop the FXRP network
- Flare gave out more than 45 billion Spark tokens to eligible holders of XRP to kickstart the new protocol.
- Essentially, anyone who had XRP tokens as of Dec. 12, 2020 was eligible for the airdrop.
- Additionally, users received more Spark tokens based on how many XRP tokens they held.
- This has incentivized bulls to buy up XRP leading to the Spark (FLR) airdrop.
- Several crypto exchanges supported the Spark (FLR) airdrop. This list included Coinbase, Binance, Kraken, KuCoin and several others.
- Ripple first invested in Flare back in 2017 through its incubation arm.
- Importantly, much development has happened since then, making the promise of smart contracts for XRP holders much more appealing.
- Now that the Spark (FLR) airdrop has occurred, XRP holders will be able to generate XRP-pegged tokens called FXRP.
- Then, these holders can use FXRP tokens within Ethereum-based DeFi applications.
- Tying it all together, XRP holders will need to use Spark (FLR) tokens as collateral in these transactions.
Why XRP Is Plunging Today
Clearly, the Spark (FLR) airdrop marked the start of a huge milestone for Ripple and XRP holders. Why then is XRP plunging on Monday?
Well, leading up to the airdrop, many bulls were pounding the table on XRP as a way to profit in the short term. Essentially, there was an easy formula to follow to succeed. Buy XRP, claim your Spark tokens after the airdrop, convert the FLR tokens into XRP and then ultimately, cash out. It looks like many people who participated in the airdrop could be doing just that.
So what should you do now? Stay calm and do your own research. If you believe in the long-term potential of XRP, you are not alone. Some like InvestorPlace Markets Analyst Tom Yeung think XRP could see 300%-plus returns in the coming years as adoption grows.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.