Wormhole, a leading blockchain interoperability platform, achieved a $16.5 billion market capitalization on its $W token debut in April 2024. As the first-ever multi-chain governance system, the airdrop represented 6% of the total supply, worth about $3 billion, making it one of the most anticipated airdrops of 2024.
In this article, we’ll look closer at Wormhole, how the airdrop went, and what’s next for the popular blockchain interoperability platform.
What is Wormhole?
Wormhole is a messaging protocol supporting crypto bridges and multi-chain applications.
For example, a newly launched exchange may want to allow deposits from a more popular existing blockchain. Or a group of non-fungible token (NFT) collections on different blockchains may want their holders to vote on a combined proposal.
Using Wormhole Connect, developers can seamlessly connect applications across blockchains. However, Wormhole isn’t a typical token bridge—it merely provides a message-passing protocol that serves these purposes.
Over 200 applications leverage Wormhole to send over one billion cross-chain messages across over one million unique wallets and over 30 blockchains. The protocol counts many established crypto projects among its users, including Uniswap, Circle, Lido, Synthetix, Pyth, and several others.
That said, the project did experience some controversy with a devastating hack in 2022 that resulted in $321 million in losses. Hackers removed 120,000 wETH tokens from the platform and distributed them into illicit Solana and Ethereum wallets.
Airdrops & DAOs
Airdrops began as marketing strategies to promote new cryptocurrencies. But, with the rise of Decentralized Autonomous Organizations (DAOs), they’ve become a popular way to distribute governance powers to active users or other stakeholders.
DAOs give token holders decision-making power by enabling them to propose and vote on projects’ future direction. These votes might govern anything from the fees that a decentralized finance (DeFi) protocol charges to the blockchains that a crypto bridge supports. In some cases, token holders can receive rewards.
From a tokenomics standpoint, DAOs must balance the need for marketing (airdrops) with liquidity requirements, voting control (avoiding 51% attacks), and engagement. So, many projects distribute most governance tokens to core team members and long-term community members with only a small allocation toward new user marketing.
Finally, the tax and legal implications of DAOs and airdrops remain a little clouded. Generally, the IRS taxes airdrops as ordinary income at the time you receive it. And, of course, you may owe capital gains or realize a capital loss when you sell. But, the SEC’s stance on whether DAO tokens are securities remains an open question.
The $W Token Airdrop
Wormhole launched its governance token, $W, on April 3, 2024, with an airdrop via its website (https://airdrop.wormhole.com) to those who have used dedicated crypto bridges—like Portal—or multichain applications on the Wormhole platform. Ultimately, 617.3 million $W tokens were allocated for the “community and launch,” with 500 million tokens earmarked for eligible users.
Like any governance token, $W allows holders to guide and impact the protocol’s direction via on-chain governance through a decentralized autonomous organization. These decisions cover everything from smart contract upgrades to fee adjustments. However, unlike other governance tokens, $W will be the first multichain governance system available on Solana, Ethereum mainnet, and EVM L2s at launch.
Whether Wormhole will fully relinquish control to the DAO remains to be seen because it could complicate responses to events like the 2022 hack. Instead, the project could opt for a compromise like Polkadot, where a select committee can overrule the DAO under certain circumstances. But, of course, that could defeat the point.
Wormhole’s token release schedule is divided into several groups. Source: Wormhole
The native ERC-20 and SPL20 tokens have an initial supply of 1.8 billion and a maximum supply of 10 billion tokens. Over the next four years, they will unlock the remaining token supply based on a preset schedule with allocations to six categories: Ecosystem & Incubation, Guardian Nodes, Strategic Network Participants, Core Contributions, Community & Launch, and Foundation Treasury (see above).
$W Token Performance
The $W token debuted at around $1.60 in April 2024 but has since stabilized between $0.50 and $0.80—nearly 60% off its highs. As of May 2024, the token’s market capitalization was just over $1 billion, with about $80 million in daily trading volume (and falling from the initial spike in early 2024).
Wormhole’s $W Token has experienced a significant decline since its airdrop, although prices have stabilized within a range in recent weeks. Source: CoinMarketCap
These economics shouldn’t be surprising to anyone watching popular airdrops. Many individuals participate in airdrops exclusively to earn the reward and cash out, which puts downward pressure on prices shortly after a debut. However, the long-term picture will depend more on the project’s popularity and success.
If you received an airdrop at $1.60 and didn’t sell, you may owe income tax on the value of the airdrop when you received it (# of tokens x $1.60) in 2024. You can avoid some or all these taxes by realizing the loss (cost basis – sale price) and using it to offset other capital gains or up to $3,000 of the amount you received (or other ordinary income).
ZenLedger can help you accurately report these taxes by connecting to your wallets and exchanges, aggregating your transactions in one place, and computing your capital gain or loss. Then, you can provide your accountant with a grand unified accounting report, upload data to TurboTax or other platforms, or generate the tax forms you need directly.
In addition, ZenLedger can show you how much of a realized loss you can take on $W Token to help offset your other capital gains or ordinary income taxes.
What’s Next?
Wormhole’s $W token launched with a bang, with $3 billion transferring hands. Under the hood, it was also the first multi-chain governance system, setting the stage for other DAOs to move cross-chain.
While the $W token has since dropped in value, prices have stabilized above $0.50, and future price movements could depend on Wormhole’s long-term prospects and how much control they ultimately turn over to the DAO.
In the meantime, individuals who participated in the airdrop should be mindful of the tax consequences of their $W tokens and consider using tools like ZenLedger to avoid any unexpected tax surprises in April 2025.
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The above is for general info purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.
