The anticipated airdrop that was supposed to bring benefits overnight has turned into a massive battle concerning human nature.
On June 11th, in response to the ongoing witch hunt review by LayerZero, co-founder Bryan Pellegrino announced on the X platform that the final list of witches would be released by the end of June, emphasizing the focus of the review on genuine users and fair distribution.
Although the remarks seemed to be in line with the project’s identity, they sparked widespread condemnation within the community. The witch hunt operation, with mixed opinions from the market, received both strong support and harsh criticism.
To understand the complexity of the situation, let’s start with LayerZero.
As a star project in the cross-chain protocol, describing LayerZero as being born with a golden key is not an exaggeration. Founded in November 2021 during a bullish market, LayerZero gained significant attention from capital providers due to the growing interest in cross-chain interoperability technology at the time. While the cross-chain asset ecosystem was in its early stages, the data transmission field beyond that was relatively unexplored.
LayerZero seized this opportunity by choosing an oracle network to replace traditional cross-chain continuous streaming transmission, outsourcing the burden of verifying on-chain information to third-party oracles. They adopted a lightweight client form, offering user-friendly and low-cost features, setting them apart from other cross-chain bridges on the market.
Although the founding team is from Canada, the core members completed their education in the United States, bringing with them ample industry backgrounds. Against this backdrop, Wall Street star FTX quickly partnered with the project. In March 2022, LayerZero’s development team, LayerZero Labs, announced the completion of a $135 million Series A+ financing round led by FTX Ventures, Sequoia Capital, and a16z, with a post-investment valuation reaching $1 billion. The project quickly became a cryptocurrency unicorn within less than five months of its establishment.
Over the following year, with the support of capital and industry KOLs, LayerZero continued to grow rapidly. They integrated and utilized more than 50 projects, covering various sectors such as DeFi, NFTs, and stablecoins. Even the collapse of FTX did not have a significant impact on LayerZero. In April 2023, LayerZero completed another $120 million Series B financing round, increasing its valuation to $30 billion. In addition to existing capital, traditional players such as Christie’s and Samsung also supported the project.
It was during this time that LayerZero announced the consideration of a governance token airdrop. Following this announcement, the community responded strongly. With major capital, high valuation, and a leading project, this configuration often indicates significant airdrops. Influenced by this, airdrop hunters quickly targeted LayerZero. Individual enthusiasts and professional studios rushed in, leading to a surge in on-chain interactions on LayerZero. The daily transaction volume exceeded 200,000 transactions, peaking at 490,000 transactions in a single day. The high frequency of interactions not only generated impressive data but also brought in substantial income. For example, the first cross-chain DApp on LayerZero, Stargate, generated over $1 million in monthly revenue, showcasing the potential within the ecosystem.
Amidst this anticipation, LayerZero’s airdrop expectations never waned, and over the following year, multiple airdrop announcements were made but continuously postponed. Finally, on May 2nd of this year, LayerZero officially announced the completion of the first snapshot on the X platform, sparking excitement in the market, with many users proclaiming, “The big one is coming.”
Indeed, according to WOO X Research forecasts, the value of LayerZero’s airdrop is estimated to be between $600 million and $1 billion. Conservatively, based on a TGE valuation of 4x, an initial circulation of 15%, and an FDV of $120 billion, the expected value of the airdrop is estimated at $600 million, translating to a value of $750 to $1,500 per user. In the optimistic scenario, with a circulation of 20%, TGE at 4.5x, and an FDV of $135 billion, the expected value of the airdrop is projected to increase to $1.08 billion, with an average value per user ranging from $1,350 to $2,700.
However, just as users were immersed in the excitement of another potential airdrop benefiting them, LayerZero dealt them a harsh blow. On May 3rd, LayerZero issued an official announcement stating that the airdropped tokens would soon be released. However, to ensure the longevity of airdrop users and develop a token distribution plan, they announced the initiation of a month-long witch hunt review operation.
Witch hunts are not uncommon, especially in airdrops, where witches typically refer to single entities using a large number of accounts for meaningless or very small transactions to qualify for airdrops. Considering LayerZero’s user base of 6 million, conducting a witch hunt to safeguard the project and users’ interests is justifiable.
However, this witch hunt operation introduced an extremely peculiar “bounty reporting mechanism.” According to the official announcement, the witch hunt would be divided into three phases. The first phase was a 14-day self-disclosure period, during which users could voluntarily expose their own witch behavior. The official would reserve 15% of the airdrop allocation for such accounts. The second phase was the official review phase, during which LayerZero’s officials would conduct witch hunts according to specific rules, and accounts identified during the review would not retain any airdrop allocation. The most controversial was the third phase – the bounty reporting phase. From May 18th to May 31st, anyone could submit reports on GitHub. Successful reporters would receive 10% of the reported user’s airdrop allocation, with the remaining 90% going back to the airdrop pool, leaving the reported user with nothing.
The act of reporting on each other undoubtedly tested human nature. While everyone knew that reporting did not maximize benefits, under the premise of not knowing if someone else reported them, according to the prisoner’s dilemma, the most appropriate choice was to report others to gain an additional 10% share. In this situation, human nature was greatly magnified, leading to a frenzy of reports and subsequent events.
The studios became the primary victims, with small studios claiming that over 200 premium accounts were identified as witches, with some employees leaving their former companies to report for personal gain. Security firms also took advantage of the situation, with rumors circulating that a certain agency provided 480,000 addresses to LayerZero at once. False reports were also common, as co-founder Bryan Pellegrino mentioned that not every report was valid. Due to the overwhelming number of reports submitted, several reporting accounts were temporarily considered spam accounts by GitHub.
Despite the controversies surrounding this massive witch hunt operation, it achieved remarkable results. In the first round of self-disclosure by witches, over 803,000 addresses were identified as potential witches, with more than 338,000 addresses self-reporting as witches. During the reporting process, LayerZero received 3,550 witch hunt reports, with each report containing at least 20 addresses detailing witch activities. In the review process, Bryan Pellegrino revealed that out of the initial 6 million wallets, 3 million wallets had sent fewer than 5 transactions, with transactions below $1 and worthless NFT transactions having an 80% reduction in weight.
Looking back at this grand witch hunt operation, there were various controversies in the market, but each party involved seemed to have its own rationale.
For the project team, interacting solely for the purpose of receiving airdrops does not constitute effective demand. After the airdrop distribution is completed, these users are likely to sell and move on to the next target, rather than being long-term holders contributing to the project’s development. In fact, after the snapshot concluded, LayerZero’s daily trading volume plummeted, reaching a new low of 27,000 transactions on June 7th.
However, for users or studios actively engaging in interactions, investing real money and contributing impressive interaction data to the project, thus providing valuable samples for optimization, they clearly embody the role of builders. The project’s actions in this regard could be seen as killing the goose that lays the golden eggs.
The community, on the other hand, is more concerned about the utilization of the reporting mechanism. Is such an aggressive witch hunt behavior worthy of admiration? This has been a subject of debate in the market. Supporters argue that out of responsibility to early users, the project should not encourage freeloading behavior, and opposing witches aligns with political correctness, as no user would want witches participating in the project. On the other hand, opponents emphasize that the rules are overly strict and unattractive, and without users optimizing and investing in the project, it would be challenging to sustain it.
Interestingly, Zksync recently announced that they would be launching an airdrop next week. While they did not initiate a large-scale witch hunt, they faced widespread criticism. Among the 690,000 addresses that received the airdrop, there were unclear airdrop details, and multiple previously screened witch addresses were found. According to witch hunter Artemis, some front-runners managed to obtain over 2 million ZK tokens by depositing the same amount of Ethereum on the same day, with almost all accounts being tagged on LayerZero’s witch list. This incident underscores the necessity of witch detection.
Returning to the core issue of airdrops, looking at the evolution of airdrops’ history, the abnormal dependency between projects and freeloading parties has been a subject of discussion.
Airdrops were initially introduced in the Auroracoin project in 2014, gaining momentum during the ICO boom of 2017. However, it was not until the rise of DeFi in 2020 that Uniswap truly ignited this activity. From a developmental perspective, airdrops have gone from being easy to difficult, transitioning from community sign-ups to registrations, from simple interactions to deep interactions, and eventually to the screening of witches, heavy user verification, and mixed fund checks. Today, airdrops have become more challenging, with increasing financial thresholds, making them less frequent, indicating a shift away from interactions as the primary focus toward financial metrics.
Regarding why projects engage in such activities, the primary reason lies in the fact that most Web3 applications struggle to generate effective demand and have limited early user bases. To attract users and interaction revenue, projects must stimulate user activity through various means, with airdrops being one of the most effective methods. After 2020, the beneficial effects of airdrops became apparent, with projects like Apecoin, DYDX, Arbitrum, and ENS enabling many early users to realize their wealth dreams.
Under the influence of these beneficial effects, the presence of freeloading parties has been a constant since the inception of airdrops. As the difficulty of airdrops has increased, freeloading parties have evolved towards specialization, institutionalization, and scale, forming a complete freeloading industry chain. Studios now allocate resources to research, anti-witch technologies, and interaction teams, with some making significant financial investments in projects. From a certain perspective, freeloading teams have even become primary market participants in projects.
Within this dynamic, the ongoing battle between projects and freeloading parties continues, with freeloading parties frequently experiencing countermeasures. The two sides maintain a tense yet delicate balance, making it the current state of all airdrop projects and the fundamental reason behind the controversial nature of radical witch hunting measures. However, in the long run, LayerZero’s aggressive bounty mechanism is expected to be widely adopted in large-scale projects.
Returning to another core issue, aside from the stimulating effects of airdrops, there is still doubt about whether projects truly have effective demand. Projects that lack long-term value rely on airdrops to attract short-term users, ultimately leading to their decline. This is one of the reasons why many renowned projects continually extend their token release timelines and take harsh measures against witches. Comparing this to the Web2 industry, the airdrop subsidy battle resembles the internet’s subsidy battles. However, in airdrops, users invest first and are then subsidized by the project, while traditional internet subsidies start by subsidizing the demand initially, gradually reducing the subsidy scope after network effects are established. This sometimes results in projects swimming naked after the subsidy ends, highlighting the importance of projects ultimately relying on their own ability to generate revenue.
Regardless, the increasing costs of long-term freeloading are an inevitable trend. Studios have long foreseen this, and as long as airdrops remain profitable, the evolution of studios will continue. For individual users, although the saying “free is the most expensive” holds true in the crypto realm, airdrops are indeed one of the most cost-effective ways to invest. Unfortunately, with airdrop rules increasingly favoring financial metrics over interactions, the opportunities for users to engage in substantial interactions may be dwindling.