What is a crypto snapshot?
A crypto snapshot is like taking a snapshot of a moment in time on a blockchain. It records all the important details about the blockchain's state at a specific block, including wallet balances, smart contract statuses, and pending transactions. In this article, we’ll break down what a crypto snapshot is, how it works, and why it matters.
How does a crypto snapshot work?
A crypto snapshot works by capturing all relevant data on a blockchain, who owns what and the state of the entire system. When a snapshot is taken, it records important details:
- Wallet balances: It logs how many tokens or cryptocurrencies each wallet holds. This information is key when distributing airdrops or calculating block rewards and staking rewards.
- Smart contract states: It saves data about smart contracts, including how many assets are locked in them and which tokens users have staked.
- Pending transactions: It ensures that transactions waiting to be processed are not lost or changed after the snapshot.
- Cross-chain interactions: It tracks asset transfers between blockchains, which is crucial for systems using cross-chain bridges.
- Transaction history and volume: It helps identify active users and reward early supporters of a project.
Crypto projects use snapshots to make decisions about airdrops, staking rewards, governance tokens for voting, and even during blockchain upgrades or splits.
Are crypto snapshots and airdrops the same?
No, a snapshot and an airdrop are not the same. A snapshot is the process of recording the state of a blockchain at a specific moment, such as wallet balances, smart contract states, and transaction data.
An airdrop is an event where a crypto project distributes free tokens to eligible users. The eligibility criteria for an airdrop often rely on a snapshot taken earlier. For example, a project might take a snapshot of all wallets holding a certain token on a specific date. Later, during the airdrop, the project distributes new tokens to those wallets based on the snapshot data.
What are the use cases of crypto snapshots?
Crypto snapshots help crypto projects distribute airdrops, manage staking rewards, enable decentralized governance, and support major events like hard forks. By capturing a precise snapshot of the blockchain at a specific moment, projects can make sure rewards and benefits go to the right people and that major changes happen smoothly.
1. Airdrop distribution
Airdrops are one of the most popular uses of crypto snapshots. During an airdrop, a crypto project distributes free tokens to users based on specific criteria. A snapshot ensures only eligible users receive these rewards by capturing the state of the blockchain at a precise moment.
There are several ways snapshots determine airdrop eligibility:
Token holdings: The snapshot records how many tokens a user holds in their wallet. The project then distributes new tokens proportionally to these holdings. For example, on June 6, 2024, Wormhole distributed a minimum of 50,000,000 Wormhole token airdrop as an airdrop to early stakers on EVM chains.
NFT ownership: Some projects use snapshots to reward NFT holders. They might airdrop tokens to those holding specific NFTs or even to those with NFTs from related projects within the same ecosystem. For example, in October 2022, a Web3 project airdropped PIXEL tokens to players who owned the game's NFT and completed various in-game missions.
Transaction history and volume: Snapshots can track the number of transactions a user has completed or their total trading volume. Active users with higher transaction volumes often receive larger rewards.
Cross-chain asset transfers: When users bridge assets between different blockchains, snapshots can record these actions. This method helps projects reward users who contribute to cross-chain liquidity or adopt new features.
Those who met the snapshot requirements received rewards. This shows how snapshots create fairness and transparency in airdrop distributions.
2. Staking rewards allocation
When users lock their assets in staking contracts, the blockchain takes snapshots at specific intervals to record how much each user has staked. These snapshots ensure rewards are distributed fairly based on each user's contribution.
For example, Ethereum 2.0 also uses snapshots to manage staking rewards. It tracks how much ETH is staked and determines the rewards that validators earn for securing the network. By regularly taking snapshots, the Ethereum network can allocate rewards efficiently and keep the staking process fair and transparent.
3. DeFi rewards and yield farming
Snapshots play a critical role in yield farming on decentralized exchanges. Yield farming is a strategy where users earn rewards by providing liquidity to DeFi platforms. Liquidity is crucial for DeFi platforms because users can trade tokens without large price volatility. For example, in the ETH/USDC pool, liquidity providers supply both ETH and USDC. Their contributions allow other users to access liquidity and swap between these tokens.
When users provide liquidity to DeFi platforms like Uniswap or Sushiswap, the platform takes regular snapshots of their contributions. These snapshots record the number of tokens a user has deposited into liquidity pools. Based on this information, the protocol distributes rewards such as transaction fees, governance tokens, or yield farming incentives. Users who contribute more liquidity or remain in the pool longer can earn higher rewards.
4. Decentralized governance
Snapshots play a crucial role in decentralized governance. When a project needs to hold a vote on proposals or changes, it uses a snapshot to record exactly who owns governance tokens and how many they hold at a specific point in time. This ensures that only eligible token holders can participate in the vote and that their voting power is accurately represented.
For example, the Compound protocol allows COMP token holders to vote on changes to the protocol, such as adjusting interest rates or adding new assets. Before each vote, the protocol takes a snapshot of all COMP token holders. This snapshot determines voting eligibility and the weight of each vote based on the number of tokens held.
Snapshots prevent last-minute manipulation, such as someone buying large amounts of tokens just to influence a vote. By setting a clear cutoff point, the project ensures that voting power is distributed fairly among long-term holders and active participants in the community.
This approach ensures that governance decisions reflect the community's genuine interests.
5. Hard forks and chain splits
The blockchain hard fork or chain split happens when a blockchain community disagrees on changes to the protocol or when a new version of the blockchain introduces features that are not compatible with the old version. This results in the original blockchain splitting into two separate chains, each following its own set of rules.
When a blockchain undergoes a hard fork, a snapshot captures the entire state of the blockchain, including wallet balances, smart contract states, and transaction data. This snapshot serves as the foundation for creating a new chain while preserving the original data.
For example, when Bitcoin Cash (BCH) split from Bitcoin in 2017, the network took a snapshot of all Bitcoin wallets. This snapshot recorded exactly how much BTC each wallet held at the time. After the split, users received an equivalent amount of BCH on the new blockchain.
Snapshots prevent confusion and disputes by providing a clear record of ownership before the fork. They also help avoid potential manipulation, as only those who held assets before the snapshot are eligible for new tokens.
Why do crypto snapshots matter?
By capturing an accurate snapshot of the blockchain at a specific moment, crypto snapshots ensure that rewards, voting rights, and token distributions go to the right people. Snapshots support airdrops, staking rewards, decentralized governance, DeFi rewards, and managing hard forks.
FAQ
How often are snapshots typically taken in blockchain networks?
The frequency of snapshots varies depending on the purpose. Some projects take snapshots regularly, such as daily or at the end of each staking cycle, while others take them only before specific events like airdrops or governance votes. It ultimately depends on the blockchain protocol and its specific needs.
How do surprise snapshot records prevent users from gaming the system?
Surprise snapshots catch users off guard, preventing them from manipulating their token holdings and on-chain activities just before an event. Without knowing when the snapshot will occur, users cannot buy tokens or do on-chain activities to meet eligibility criteria at the last minute.
How do snapshot records prevent double-spending in airdrops?
Snapshots create a fixed record of wallet balances and asset ownership at a specific time. This record ensures that each eligible wallet receives the airdrop only once, preventing users from moving assets between wallets to claim multiple rewards.
