ZKsync Airdrop Controversy Highlights the Challenges of Web3 Project Bootstrapping

Jun 20, 2024

Author: @Web3Mario

Compiled by: WuBlockchain

Community Debate Focus: Is Interaction Key or is Capital Key

For a long time, the Web3 industry seemed to have established a paradigm of attracting users through airdrops to achieve project bootstrapping. This is especially true in the Layer 2 sector, where guiding developers and users with the expectation of potential airdrops encourages developers to actively build and maintain DApps while incentivizing users to bridge their funds to the target Layer 2 early on and actively participate in DApps running on it, thereby creating a vibrant ecosystem.

As a result, users have commonly expected ZKSync’s airdrop to be comparable to its two direct competitors, Arbitrum and Optimism. This conclusion makes sense from the perspectives of industry influence, VC background, and fundraising scale. However, the results differed significantly, leading to widespread community debate as many users, relying on past experiences, did not receive the anticipated rewards.

To explore the reasons behind this debate and to gain insights for the future, it is necessary to review the airdrop rules set by Arbitrum and Optimism. First, let’s revisit Arbitrum’s airdrop, which dates back to March 2023. It allocated 11.62% of its total supply in ARB airdrops to Arbitrum users and 1.13% to DAOs operating within the Arbitrum ecosystem. The airdrop was based on snapshot data from February 6, 2023, with specific rules for users as follows:

● Cross-chain to Arbitrum: Users needed to transfer funds to Arbitrum One or Arbitrum Nova.

● Transactions over different periods: Users needed to have traded in two, six, or nine different months.

● Transaction frequency and interaction: Users needed to have conducted more than 4, 10, 25, or 100 transactions, or interacted with the corresponding number of smart contracts.

● Transaction value: Users needed to have traded a total value exceeding $10,000, $50,000, or $250,000.

● Liquidity provision: Users needed to have deposited more than $10,000, $50,000, or $250,000 in liquidity.

● Arbitrum Nova activities: Users needed to have conducted more than 3, 5, or 10 transactions on Arbitrum Nova.

Each criterion had specific point calculations, with a maximum of 15 points determining the number of ARB users could claim. The calculation was approximately linear, with a starting reward from 3 points and a maximum reward of 10,200 ARB. For DAO rewards, the specific amount was determined based on activity, resulting in 137 DAOs receiving airdrops, with Treasure and GMX receiving the most at 8 million ARB each, a substantial gain.

Next, let’s review Optimism. Unlike Arbitrum, Optimism’s airdrop occurred in multiple rounds, distributing 19% of its total supply. The first round in June 2022 allocated 5% of the rewards to 260,000 addresses. Up to now, there have been four rounds of airdrops with the following specific rules:

● First round: Users were categorized into ordinary and active users based on transaction frequency (1 transaction vs. more than 4 transactions), including participants of Ethereum DAOs, Ethereum multi-signature wallet users, Gitcoin donors, and cross-chain bridge users. Each identity corresponded to a fixed reward, with the latter three rewards being cumulative.

● Second round: Users with a total gas fee over $6.1 or a delegated governance token age over 2000 could share 11,742,277 $OP.

● Third round: Users with a delegated governance token age over 18,000 could share 19,411,313 $OP.

● Fourth round: NFT creators were allocated 10,343,757 $OP.

From the above review, we can easily see that in the specific activity settings, interaction frequency is often an important reference indicator; users with more frequent interactions generally receive more rewards. However, this unwritten rule seems to have been discarded by ZKSync. In the design of ZKSync’s airdrop, the qualifications and distribution for ZKSync users are selected and calculated through four consecutive steps, with the specific rules roughly as follows:

● Qualification Screening: Every address that has transacted on ZKSync Era and ZKSync Lite will be checked against qualification standards. Seven criteria were set to screen eligible users, such as interacting with more than 10 non-token contracts that have been active for at least 30 days and sending at least 5 transactions on ZKSync Era.

● Allocation: When calculating the specific reward amount for an address that meets the above standards, a value scaling formula is used. This formula calculates a time-weighted average based on the amount sent to ZKSync Era and the duration these crypto assets are held in the wallet. It adjusts the allocation for each address, and funds involved in DApp protocols receive a 2x multiplier. This means if you transfer large funds to ZKSync, hold them for a long time, and actively use these funds in risky products like providing liquidity to a DEX, you will receive more rewards.

● Multiplier: Addresses meeting specific criteria can receive a multiplier in their allocation. These criteria usually involve holding high-risk ZKSync native altcoins or NFTs.

● Sybil Detection: Lastly, ZKSync also conducts Sybil attack detection to ensure most bots are filtered out. The detection standards include the source of the first ETH transaction after the EOA address creation and the interaction between the EOA address and CEX deposit addresses, leveraging the KYC characteristics of CEXs.

From these specific rules, it is clear that interaction frequency is not considered in the reward calculation, with a greater focus on the amount of funds in a single account and the willingness to allocate to risky assets. Therefore, when the results were announced, many users and studios who engaged heavily with ZKSync based on past experiences were caught off guard, sparking the controversy. These users typically distribute large amounts of funds across hundreds or even thousands of addresses to increase the potential number of airdrop-eligible addresses. They use small amounts of funds to participate in certain protocols, frequently engaging with interactions through automated scripts or manual tasks to boost potential rewards. However, ZKSync’s airdrop setup rendered this strategy ineffective, with many frequently interacting addresses incurring more in fees than the rewards received, naturally causing dissatisfaction among this group.

Moreover, a large number of airdrop hunter KOLs on X (formerly Twitter) can be seen. These individuals publish content on how to easily obtain project airdrops, usually having a wide fan base and strong influence, thus putting pressure on ZKSync officials via social media, hoping to change the situation. However, the official stance appears firm, not altering the rules under pressure, leading to the current situation. The debate has sparked accusations and defenses regarding potential malicious behaviors, making this public opinion battle particularly notable.

In conclusion, the demands of both sides seem understandable, and the right or wrong can only be assessed from different perspectives. However, I believe there are some key points worth pondering: as of today, who are the core value users during the cold start phase of a Web3 project, or rather, what type of users should be incentivized during this phase?

High Interaction Leads to Sybil Attack Issues, Proof of Wealth Leads to Monopoly Issues

Rewarding early participants based on airdrop incentives has been proven to be an effective means of bootstrapping Web3 projects. A well-designed airdrop mechanism can help projects attract seed users efficiently in the early stages and educate users on critical behaviors of the protocol, thus increasing product stickiness. This is why, for a long time, most Web3 projects have focused on incentivizing interaction behaviors in their airdrop settings. However, this approach has a downside: it lowers the threshold for rewards, making the activity susceptible to Sybil attacks. Interaction behaviors are easy to automate and scale, giving many professional teams room for bulk operations. When a large number of bot accounts flood in, it may create a temporary illusion of prosperity for the protocol. However, these “users” are typically opportunistic and cannot drive the project’s future development. After receiving rewards, most will cash out to increase fund turnover and maximize profits. This incentive mechanism dilutes the number of rewards for truly valuable users, which is counterproductive.

So why did this mechanism work well in the early days? Naturally, it was because there weren’t as many professional teams back then, and most users hadn’t yet developed a habitual thinking around this incentive mechanism. Interaction behaviors were still relatively pure and belonged to real users, making the incentives more efficiently allocated to these users. The resulting wealth effect also helped project teams achieve the aforementioned benefits. However, with the subsequent influence of the profit-making effect, this method is clearly no longer effective in attracting real users. My personal feeling is that the effectiveness of airdrop activities focusing on interaction as the main incentive target reached its peak during the Arbitrum airdrop.

This is the fundamental reason why ZKSync wanted to abandon interaction count as a basis for identifying valuable users and instead focus on the relative scale of assets. However, this proof of wealth method is not without its problems. Although it can effectively identify and exclude the risk of Sybil attacks, it introduces a new issue of wealth distribution inequality due to monopoly.

We know that a core value of Web3 projects is the bottom-up distributed autonomous model. This means that the support of grassroots users (real users with small amounts of funds) is the foundation for a project’s development. It is because of grassroots users that some whale users may flock in, forming a relatively sustainable development pattern. After all, in most scenarios, the advantage of funds is significant, and only when grassroots users are numerous can whale users achieve substantial returns. The proof of wealth distribution system leads to significant early gains for whale users among early adopters, making it difficult to effectively incentivize grassroots users, thereby failing to form a cohesive community.

In the final analysis, for Web3 projects, designing a cold-start mechanism requires careful consideration of the value user profile for their product. According to the current environment, designing a corresponding mechanism that effectively incentivizes these value users while avoiding Sybil attacks as much as possible is crucial. Therefore, designing one’s cold-start mechanism is a very valuable topic, and I welcome everyone to leave comments on my X (formerly Twitter). Let’s brainstorm some interesting solutions together.

Wu Blockchain

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