How will LayerZero manage its airdrop amid falling crypto prices, millions of users, and several stakeholders?
Posted May 14, 2024 at 11:02 am EST.
Interoperability protocol LayerZero recently took a snapshot in preparation for its upcoming airdrop, which will coincide with the protocol’s token generation event (TGE). This airdrop is notable not only for its scale but also for the multiple layers of complexity it introduces.
Learn more: What Is a Crypto Airdrop? A Beginner’s Guide
Bryan Pellegrino, founder and CEO of LayerZero, told Unchained that his focus isn’t on the difficulty of the task but on finding the best solution for the specific challenge at hand. “I love hard problems in general, but what matters more is how we execute and achieve our end goal,” he said.
Contrary to what some might assume from online discussions, Pellegrino said the primary aim is not just to identify sybil accounts but to reward the largest number of genuine and committed users. “Our goal is to identify those who truly find our technology beneficial and to ensure the initial distribution reaches them and the developers who have created the applications they use,” Pellegrino explained.
Here’s a closer look at the factors that could make this airdrop one of the most intricate ever:
1) A Large User Base
Since its launch, over six million wallets have engaged with LayerZero. A critical part of the token distribution strategy is to identify the most engaged users, those who are most likely to continue interacting with the protocol. According to Pellegrino, out of the six million addresses, only 400,000 to 800,000 are truly active.
The sheer volume of users and active wallets within the LayerZero ecosystem introduces significant challenges in equitably and efficiently distributing the tokens, thereby complicating the airdrop’s logistics.
However, some argue that it may be better to distribute the token to as many people as possible. Olaf Carlson-Wee, founder and CIO of Polychain Capital, said earlier this year on the Unchained podcast: “You want to give it away to as many people as you possibly can. And it’s the exact opposite logic of building a traditional proprietary revenue-generating business, which is to be very careful about who you let on your cap table.”
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2) Many Outside Developers
Many projects use LayerZero technology but are not developed by LayerZero itself. According to its website, there are 53,120 Omnichain applications (OApps) built on the LayerZero protocol to “achieve frictionless blockchain-agnostic interoperation through LayerZero’s universal network semantics.”
This is similar to EigenLayer, which operates a restaking platform with many liquid restaking protocols built on top of it.
Questions arise about whether these other projects will be rewarded and how tokens might be distributed, adding uncertainty and complexity to the airdrop process.
3) Cross-Blockchain Operations
As an interoperability project, LayerZero operates across 70 blockchains, presenting unique challenges to ensuring compatibility and maintaining security across different networks. And analyzing data from so many different networks will undoubtedly be a challenge.
4) Community Expectations
Balancing community expectations is essential, especially given recent events where dissatisfaction over allocations has been evident in projects such as EigenLayer, Renzo, and EtherFi, among others. Users frequently express discontent with their share. LayerZero has yet to publish its tokenomics, but should the allocation be perceived as insufficient, there could be significant backlash.
Read more: Who Knew Throwing Tantrums Would Be Such an Effective Strategy to Receive a Larger Airdrop Allocation?
Hayden Adams, the founder of Uniswap, which pioneered the surprise airdrop approach, recently emphasized that projects should avoid being “stingy” and allocate a generous portion to the community.
5) The State of the Market
The cryptocurrency market is currently experiencing a downturn, with bitcoin and other major digital currencies showing declines over the past month. No specific date has been announced for the LayerZero airdrop, but the timing of such events can be crucial, particularly in light of recent market trends. Previous airdrops, including those by Renzo, Mode, and Parcl, have failed to meet user expectations, trading below anticipated values shortly after launch.
Read more: Renzo and Kamino Tokens Tank as Airdrops Go Live
Read more: Layer 2 Network Mode’s Native Token Drops Over 60% Immediately After Airdrop
6) The Utility of the Token
As LayerZero prepares for its token launch, there is a focus on defining its utility. A counterexample is the Wormhole project, which released a token lacking inherent utility over a month ago, resulting in a disappointing performance in the market. Wormhole’s token is down over 60% since its launch.
7) The Presence of Airdrop Farmers
As one of the longest-running projects in the space since, having started in 2021, LayerZero, has attracted numerous users aiming to unfairly? profit from the project, a group more commonly known as airdrop farmers. In response to this, LayerZero recently initiated a sybil detection program to identify and mitigate such exploitative behavior. (Sybil farming refers to the process of creating multiple accounts to unfairly be entitled to rewards.)
However, the ingenuity of users in the crypto community means there remains a risk that this program might not fully succeed in preventing all fraudulent activities.
When asked for comments, Nansen, the company that LayerZero partnered with to strengthen sybil detection methods, declined.
Read more: Why LayerZero’s New Anti-Sybil Policy Is Getting Both Backlash and Praise
8) Multiple Funding Rounds
LayerZero has had multiple funding rounds that have raised a total of $263.3 million, including a seed round, a Series A and an extended Series A, and finally, a Series B that valued the project at around $3 billion. Needless to say, the financial landscape is complex. Multicoin Capital, Binance Labs, Sequoia, and a16z are among the project’s many backers. The involvement of multiple and diverse stakeholders adds another layer of operational complexity to the airdrop.
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