Author: Contributed by Asher Zhang
In regards to LayerZero’s anti-rug mechanism, we previously published an article titled “Coin issuance imminent, LayerZero initiates ‘rumor has it’, what ‘dangers’ and ‘opportunities’ lie ahead?” expressing, “This atmosphere of mutual scrutiny is akin to the ancient emperors’ fear of blocking information flow and adopting the ‘rumor has it’ approach, based on many historical lessons, this may not necessarily be a wise move.” With a report of 470,000 suspected witch addresses submitted to LayerZero, discussions and criticisms about this anti-rug mechanism in the market have reached a climax. What feedback and dissatisfaction do communities have? What measures have the project team taken in response? Coincidentally, the recent popular project Taiko directly adopted an opaque airdrop mechanism, which has also faced considerable criticism in the market. How have the once-praised Web3 airdrops evolved? Perhaps it is time to reflect on the phenomenon of airdrops in this Web3 era. The interests at play behind LayerZero’s anti-rug mechanism dispute
In a sense, the current community debate about LayerZero fundamentally revolves around a conflict of interests, and LayerZero’s anti-rug mechanism cleverly leverages human nature in an attempt to counteract this. When LayerZero disrupts the rug-pulling institutions’ cheese, it inevitably triggers an unprecedented war of words.
LayerZero is a highly renowned full-chain interoperability protocol with a high valuation, with investors including Multicoin, Binance Labs, a16z, Sequoia Capital, and other well-known crypto investment institutions. Therefore, the Web3 rug-pulling army has set its sights on this “lamb” waiting to be slaughtered. WOO X’s research department estimates that the upcoming LayerZero airdrop could be worth between $600 million to $1 billion. Conservatively, assuming the TGE is valued at four times the previous round valuation, with an initial circulation of 15%, LayerZero’s estimated TGE market value is $1.8 billion, with a FDV of $12 billion. The airdrop value is estimated at $600 million, translating to a value between $750 to $1,500 per user. Optimistically, assuming the TGE is valued at 4.5 times the previous round, with an initial circulation of 20%, LayerZero’s estimated TGE market value could rise to $2.7 billion, with a valuation of $13.5 billion. In this scenario, the airdrop value is expected to increase to $1.08 billion, with an average value per user between $1,350 to $2,700.
With a massive airdrop valued at $600 million to $1 billion, the benefits are undeniably substantial, making it irresistible for the rug-pulling army. However, LayerZero does not want the rug-pullers to succeed in their efforts. Essentially, LayerZero’s strategy revolves around three key aspects: “self-disclosure,” “judgment,” and “mutual disclosure.” Among them, “self-disclosure” retains 15% of the airdrop allocation, with those identified not receiving the airdrop, and mutual reporting can earn a 10% share of the airdrop.
From the results, LayerZero has identified a large number of rug-pulling users, but it is evidently not enough. According to LayerZero CEO Bryan Pellegrino, over 3,000 witch reports and 30,000 appeals were received within a few hours of the bounty program’s launch. Bryan Pellegrino later stated that out of 6 million addresses, only 6.67% – 13.33% are eligible to receive the airdrop; 90% – 95% of the reports are valid, and even more; however, negative reports are quickly “discarded,” as nothing is perfect. On June 5th, Bryan Pellegrino further elaborated on the X platform, saying, “I hope to have two more months to handle the witch report inspections, there are some very obvious large witch clusters, containing thousands of addresses, but due to time constraints, I have to give up checking them because they are highly unlikely to qualify for LayerZero’s final airdrop, but I believe they may receive other airdrops. However, it should be noted that this is just my personal venting because I don’t have that much time. LayerZero’s TGE timeline remains unchanged.” Amidst the chaos, the distinction between right and wrong
For LayerZero, the most high-quality users should receive the airdrop rewards, and these top-quality users should be the most “persistent” users, defined as those most likely to continue using LayerZero in the future or maintain their past usage habits. More specifically, LayerZero is attempting to dismantle rug-pulling institutions. LayerZero’s stance is clear: to protect minority users, primarily targeting large witches, essentially the rug-pulling studios. LayerZero states that “witch self-reporting” is not aimed at individual users but at large witches, and LayerZero employees are prohibited from participating in airdrop claims, with violators facing dismissal. LayerZero’s scrutiny will be stringent to prevent “hunters” from falsely reporting to increase profits and inadvertently harm real users.
However, rug-pulling studios argue that they have invested substantial resources, improved project data, and tested performance, only to be abandoned afterwards. Under the mutual reporting system, irregularities have surfaced. Some rug-pulling studio employees have chosen to resign and report internal accounts, certain project’s airdrop whales have been reported, and users have targeted large holders/rug-pulling KOL witch clusters for mass reporting, with reports even suggesting that a security agency submitted 470,000 suspected witch addresses to LayerZero at once.
Cryptocurrency influencer Marco states, “Mutual reporting” has not only become a game between the project team and studios but also a struggle between studios and individual users. For every successfully reported address, 90% of the airdrop tokens will return to the airdrop pool, meaning that users’ share of the airdrop will increase, turning mutual reporting into a weapon for ordinary rug-pullers to advocate for “rug-pulling justice.”
Blockchain expert Dao notes: “The occurrence of events like LayerZero’s can be anticipated from a trend perspective. From the project’s viewpoint, as the startup costs increase, airdrops will inevitably become more cautious. As time goes on, airdrop eligibility criteria will become more strict. For users, whether professional rug-pullers or regular retail investors, profits from rug-pulling methods will become scarcer, eventually reaching a point where income and costs of participation are very close. Getting rich overnight from rug-pulling will become a thing of the past. I agree with the project team catching ‘witches,’ but I strongly oppose catching ‘witches’ through reporting and exposing.” Reflecting on the industrialization of “rug-pulling”
In a sense, wherever there is a chance for overnight wealth, there will be a rush. This was the case with ICOs in 2017, and it’s the same with rug-pulling now. However, from LayerZero’s mutual reporting, a trend emerges: rug-pulling is moving towards industrialization and specialization, with evident drawbacks. Before token issuance, numerous rug-pulling institutions participate, creating false prosperity on the blockchain. After token distribution, these institutions dump tokens on a large scale, causing significant price drops for project tokens, leading many investors to hesitate. This may be a reason why many prominent projects in this round have seen a decline right after launch.
Looking at the trend, the ongoing battle between project teams and rug-pulling institutions will continue, with the core issue being the balance of interests. From a project development perspective, early project development does require a large number of traders to test network performance, but massive dumping is not conducive to the project’s long-term success. Project teams may consider retaining some profits; additionally, linear release of airdrop tokens may help alleviate short-term selling pressure.
Overall, the opportunities for getting rich overnight through rug-pulling will diminish, and project teams and rug-pulling institutions may find a way to balance interests. Moreover, both parties could consider bringing behaviors that were previously hidden into the public eye in a fair and transparent manner.
