The tragedy and thoughts on LayerZero airdrop anti-farming

Author: Asher Zhang, BitPushNews

Regarding LayerZero's anti-farming mechanism, we previously published an article titled "With the Token Generation Event Approaching, LayerZero Launches 'Whistleblowing', What 'Risks' and 'Opportunities' Will the Future Bring?" stating: "This mutual surveillance atmosphere is akin to the ancient emperors fearing the blockage of free speech and thus adopting 'whistleblowing'. From many historical lessons, this move may not be entirely beneficial." With a report of 470,000 suspected witch addresses submitted to LayerZero, discussions and criticisms regarding this anti-farming mechanism have peaked in the market. What feedback and dissatisfaction does the community have? What measures has the project team taken in response? Coincidentally, the recently popular project Taiko has directly adopted an opaque airdrop mechanism, which has also faced much criticism in the market. What changes have occurred in the once-praised Web3 airdrop? Perhaps it is time to reflect on the airdrop, a product of the Web3 era.

The Battle of Interests Behind LayerZero's Anti-Farming Mechanism

In a sense, the current community debate about LayerZero is essentially a battle of interests, and LayerZero's anti-farming mechanism cleverly utilizes human nature to counteract this. When LayerZero moved the cheese of farming institutions, it inevitably sparked an unprecedented war of words.

LayerZero is a well-known cross-chain interoperability protocol with a high valuation, backed by prominent crypto investment institutions such as Multicoin, Binance Labs, a16z, and Sequoia Capital, making it an early target for the Web3 farming army. WOO X's research department, WOO X Research, estimates that the upcoming airdrop for LayerZero will be valued between $600 million and $1 billion. Conservatively, assuming the TGE is four times the previous valuation and the initial circulation is 15%, LayerZero's estimated TGE market cap is $1.8 billion, with an FDV of $12 billion. The airdrop value is expected to be $600 million, translating to a value of $750 to $1,500 per user. In an optimistic outlook: assuming the TGE is 4.5 times the previous valuation and the initial circulation is 20%, LayerZero's estimated TGE market cap will rise to $2.7 billion, with a valuation of $13.5 billion. In this case, the airdrop value is expected to increase to $1.08 billion, with an average value per user between $1,350 and $2,700.

With a massive airdrop valued at $600 million to $1 billion, the benefits are undeniable, and how could the farming army possibly miss out? However, LayerZero does not want the farming army to take advantage of it. Essentially, LayerZero's strategy consists of three main points: "self-reporting," "judgment," and "mutual reporting." Among them, "self-reporting" allows for 15% of the airdrop allocation to be retained, and those filtered out will not receive the airdrop, while mutual reporting can earn 10% of the airdrop share.

As a result, LayerZero has filtered out a large number of farming users, but it is clearly still not enough. According to LayerZero CEO Bryan Pellegrino, within a few hours of the bounty program's launch, over 3,000 witch reports and 30,000 appeals were received. Subsequently, Bryan Pellegrino stated: "It is expected that only 6.67%-13.33% of the 6 million addresses will qualify for the airdrop; 90%-95% of the reports are valid, and possibly even more. Of course, bad reports will be quickly 'discarded'; nothing is perfect." On June 5, Bryan Pellegrino further stated on the X platform: "I hope to have another two months to handle the inspection of witch reports. There are some very obvious large witch clusters containing thousands of addresses, but due to time constraints, I had to give up checking them because they are highly unlikely to meet LayerZero's final airdrop qualifications, but I am sure they may qualify for other airdrops. However, I must clarify that this is just my personal venting, as I do not have that much time. LayerZero's TGE timeline remains unchanged."

Amidst the Clamor, the Distinction Between Right and Wrong

From LayerZero's perspective, the highest quality users should receive airdrop rewards, and these top users should be the most "persistent" users, where "persistence" is defined as those most likely to continue using LayerZero in the future or to maintain their past usage habits. More specifically, LayerZero is attempting to eliminate "farming" institutions. LayerZero has made its stance clear: protect niche users, primarily targeting large witches, which essentially refers to farming studios. LayerZero states: "Self-reporting by witches" is not aimed at individual users but at large witches, and LayerZero employees are prohibited from participating in airdrop claims; violators will be fired. LayerZero's inspection efforts will also be very strict to prevent "hunters" from randomly reporting to expand their profits, inadvertently harming real users.

On the other hand, farming studios believe that they have invested real money, helping projects improve data and test performance, only to be discarded afterward. Under the mutual reporting system, chaos has begun to emerge. Some employees of farming studios have chosen to resign and report internal accounts, certain projects' large airdrop addresses have been reported, and users have targeted large accounts/farming KOLs for concentrated reporting, with rumors circulating that a security agency submitted 470,000 suspected witch addresses to LayerZero in one go.

Crypto influencer Marco stated, "Mutual reporting" has not only become a game between project parties and studios but has also turned into a struggle between studios and individual users. Since each successful report of an address will return 90% of the airdrop tokens to the airdrop pool, this also means that the airdrop received by users will increase, and "mutual reporting" seems to be becoming a weapon for ordinary farmers to promote "farming justice."

Blockchain commentators have noted: The occurrence of events like LayerZero is, in my opinion, foreseeable in terms of trends. From the project's perspective, as the startup costs rise, there will be increasing caution regarding token airdrops. As time goes on, the criteria for airdrop eligibility will become stricter. From the user's perspective, whether they are dedicated farmers or ordinary retail investors, the profits gained from farming will become increasingly thin, potentially reaching a point where income closely matches investment costs. The days of becoming rich overnight from airdrops will surely become history. I agree with the project parties capturing "witches," but I am very opposed to the method of capturing "witches" through reporting.

Reflection on the Industrialization of "Farming Airdrops"

In a sense, wherever there is a chance for overnight wealth, people will flock to it. This was true for the ICOs of 2017, and it is true for today's farming airdrops as well. However, the mutual reporting seen in LayerZero reveals a phenomenon: farming airdrops are moving towards industrialization and specialization, and this phenomenon has its obvious drawbacks. Before issuing tokens, many farming institutions participate in creating a false on-chain prosperity, and after the token distribution, these institutions dump their holdings, causing significant declines in project tokens, which deters many investors. This may also explain why many well-known projects have seen declines upon launch.

From a trend development perspective, the game between project parties and farming institutions will continue, with the core being the balance of interest distribution. In the early stages of project development, it is indeed necessary to have a large number of traders test network performance, but their dumping behavior is detrimental to the project's later stages. Project parties might consider retaining some profits; in addition, linear release of airdrop tokens could also be a way to alleviate short-term selling pressure.

Overall, the opportunities for becoming rich overnight through farming airdrops will become increasingly scarce, and project parties and farming institutions may find a balance of interests; moreover, both sides might also attempt to bring previously hidden behaviors into the open and fair arena.