Our experts tell us how blockchain developers are identifying farms of thousands of wallets. Which are designed to artificially inflate the volume of token distribution activity

Distribution of tokens to active users in the form of airdrop. That is, encouraging the activity of early users, has become a trend on the cryptocurrency market. Decentralized exchanges, NFT-marketplaces, games, wallets, social networks and other services are created on blockchains of ecosystem cryptoprojects. At the early stage of development, all of them need active users and testing. It is for activity in such projects that tokens are eventually distributed. But recently one project decided to distribute rewards to those who helped identify the wallets of so-called drophunters. Or sybil – those who engage in aggressive scrambling for activity in the blockchain project ecosystem. In order to maximize the number of tokens that the developers will give away in the form of airdrop.

In order to maximize potential rewards, sibyls use farms of thousands of accounts to artificially inflate project activity. Who can organize token distributions.

A whole industry of crypto wallet farms

When creating the Decentralized Autonomous Organization (DAO) in 2022, the developers of Hop Protocol issued $3.5 million in tokens. This was done to give away among active users. However, they discovered thousands of addresses that were trying to cheat the system. In doing so, aiming to get a larger share of the airdrop. Volunteers helped developers identify the interconnections of multiple wallets and weed out farms from these accounts. Which were involved in tapping into the activity in order to get tokens in the giveaway. This ended up saving the project about $1 million. And the developers decided to give away tokens to those who helped uncover dishonest participants.

Hop Protocol co-founder Christopher Winfrey, in an interview with DL News, called the sybil address activity “an entire industry, not a random collection of crafty hackers.” “I suspect they’re running a set of sophisticated operations using multiple accounts on exchanges. And they pattern their behavior at random to make the activity indistinguishable from that of real users,” Winfrey told reporters. He added that the failure to filter out sybil could have a “devastating impact on projects.” As airdrop hunters tend to sell the resulting tokens en masse as soon as they are listed on cryptocurrency exchanges, collapsing the exchange rate.

Despite the relative success in weeding out dishonest users, Winfrey believes That sybils definitely have an advantage. He admits that “it’s an impossible battle to win.” And detecting sybil activity is getting harder and harder. He estimates that their farms have collectively made hundreds of millions of dollars on big giveaways.

A surge of activity in another project

The Stargate cryptocurrency bridge, which allows to move tokens between incompatible blockchains. It processed more than 300,000 transactions with more than $100 million in assets every day over the past week, surpassing the record highs set more than a month ago. And far outpacing direct competitors in terms of user activity.

Stargate uses the LayerZero protocol, a development by LayerZero Labs. The project is valued at $3 billion after an April $120 million investment round led by venture capital fund Andreessen Horowitz. And is considered in the cryptocurrency community to be one of the first contenders for a massive airdrop.

According to Messari analyst Chase Devens, the vast majority of deals and volumes at Stargate. It’s most likely coming from ” airdrop hunters.” In the program code of the LayerZero project. Which is publicly available on the Github repository, mentions the yet to be announced ZRO token. The head of LayerZero, Brian Pellegrino, did not respond to a request from reporters.

The performance of LayerZero ecosystem projects and other candidates for airdrop began taking off in March. This was immediately after the successful token giveaway from Arbitrum, whose fame went beyond the cryptocurrency community precisely due to news about the big giveaway.

Such a profitable surge of activity to the projects gave rise to a marketing ploy – a hint of an airdrop. The ecosystem projects zkSync, Starknet and Polygon zkEVM saw a significant increase in user activity in May. Earlier this month, Polygon Labs co-founder Sandeep Nailwal hinted at the possibility of issuing tokens to the first Polygon zkEVM users.

The fight goes on

Airdrops are designed to reward early adopters. And also for testers and liquidity providers for new projects. But free giveaways largely attract users who are not interested in the project. And whose activity disappears after the token giveaway.

For example, monthly trading volume on decentralized exchange aggregator Paraswap peaked in November 2021, when the developers conducted an airdrop of the PSP token. Within a year after that, the project’s turnover dropped by 75%. And have not returned to the earlier figures. But there are also reverse examples: the value of assets (TVL) in Arbitrum’s turnover reached an all-time high on May 6 – more than a month after the ARB token was released.

Hop Protocol was one of the first blockchain projects to openly fight the mass influx of activity. Earlier cryptoprojects didn’t pay attention to the account farms participating in airdrop. And distributed tokens even for a single interaction with the ecosystem.

Projects like Safe or the same Arbitrum adapted sybil detection methods from Hop Protocol during their giveaways. Optimism Foundation, the organization behind the blockchain project of the same name. It has also campaigned to disqualify many of the token applicants the developers deemed sybils.

Our experts note that as more airdrops are expected, cryptoprojects will apparently continue to fight aggressive drophunters. And their clusters of wallets deployed for high-yield giveaways.

Our experts tell you what you need to know about blockchain interaction technology. And a possible airdrop of the LayerZero project, supported by leading venture capitalists

In April, LayerZero Labs, a company that creates technology to help existing blockchains interact with each other. And announced it had raised $120 million in an investment round led by a16z crypto. This is the cryptocurrency arm of venture capital firm Andreesen Horowitz.

The project, launched less than two years ago, has a total investment of $250 million at the time of publication. This is not the first time for LayerZero the large-scale funding round is one of the largest among cryptocurrency companies in 2023. And LayerZero Labs’ valuation of $3 billion puts it on par with market giants like Coinbase, which has a market capitalization of more than $13 billion.

Along with heavyweights Andreesen Horowitz and Sequoia Capital, more than 30 investors have invested in LayerZero Labs. And including the venture capital units of Samsung, auction house Christie’s, USDC stabcoin issuer Circle, NFT-marketplace OpenSea, cryptocurrency exchange OKX and others. Participation of representatives of different spheres of activity. At the same time, directly or indirectly related to the crypto-business, probably, indicates the demand for solutions of this project. And their subsequent integration into a wide range of services of Web3 segment.

Interaction of different blockchains with each other

LayerZero Labs co-founder and CEO Brian Pellegrino has assembled a team of developers to tackle the problem of insularity of various blockchains. And the crypto-assets and applications that exist on them. He himself calls LayerZero a “messaging protocol” . That is, software code that allows application developers to send data, for example, from Ethereum to Solana.

By “messaging” is meant a variety of scenarios and operations. This includes, among others, converting coins or tokens from one network into coins or tokens in another. Thanks to the so-called bridges that use LayerZero, this transfer is faster. It is also cheaper and more convenient compared to existing solutions – both decentralized and those that involve an intermediary in the form of an exchange or an exchanger.

What blockchain bridges are and why they are needed

In a press release accompanying the April investment round, a16z lead partner Ali Yahya said. That there are already more transactions flowing through LayerZero than all existing bridges in known ecosystems. He added that “there is already no doubt” that the future of cryptocurrencies is “multichain.” That is, the process of interconnecting multiple blockchains and the assets, services and applications that exist on them. LayerZero already uses decentralized crypto exchanges, including PancakeSwap, SushiSwap, TraderJoe and Uniswap.

Pellegrino dropped out of college to become a professional poker player. When the U.S. government banned online poker in 2011, he already had the capital to launch his first startups. While studying computer science in college, he created a fantasy sports website. Which he sold two years after launching. Then his entrepreneurial career continued: he worked with professional baseball teams. And did research on machine learning algorithms and launched another business before LayerZero.

LayerZero Labs now employs 42 people and is co-founded by Ryan Zarick. Employees work from offices in Vancouver and Hong Kong. The company earns money by charging a commission for every interaction with its protocol. But Pellegrino said the significant amount of funding allows the company to focus on more global goals than maximizing profits alone.

Partners plans to continue to dominate the growing field of companies That offer developers ways to transfer data between different blockchains. LayerZero’s competitors include the Cosmos project. In which developers also position it as a protocol by which different blockchains can send and receive data.

“Our goal is to win and capture the whole market in this niche,” Pellegrino told Fortune. He said LayerZero is using investor funds to expand its Web3-gaming presence. It’s also expanding into the Asia-Pacific region.

Possible Airdrop by LayerZero

LayerZero is known not only for in-demand technical solutions and billion-dollar business valuation. Participants of the cryptocommunity consider the project to be one of the main candidates for a major airdrop.

The company itself has not announced the distribution, as well as the launch of its own token in principle. But certain business patterns and a significant amount of venture capital investment act as indirect evidence That LayerZero may follow the example of sensational airdrop projects such as Aptos, Blur, Optimism or Arbitrum. The latter went beyond the cryptocurrency community in terms of hype. When it became widely known that the participants of the giveaway received tokens worth thousands of dollars.

Service developers often don’t announce the token at launch. But similar parameters in doing business, as well as the experience of their competitors, help community members determine. Which projects will decide sooner or later to release their own asset. And which types of activity can be rewarded.

Even before the sensational distribution of tokens from Arbitrum by so-called drophunters, it was LayerZero that was in the list of the most obvious contenders.

It’s easy to find instructions or detailed checklists with a set of project activities in blogs, thematic channels or chat rooms. Who are using LayerZero solutions, claiming airdrop. It even goes so far that even quite large resources publish instructions on how to participate in an unannounced airdrop, such as the OKX exchange blog. Most of them duplicate each other in one way or another. For example, a potential candidate for distribution must be active in social networks of the project. And attract new members, use existing services in the test network, etc.

It remains to be seen how developers will react to this, if they actually arrange an airdrop. One way or another, from a financial point of view they benefit from any interaction with the protocol. Both from a really interested in the project, and from another “airdrop hunter”.

Crypto Upvotes experts evaluated the effectiveness of airdrop Arbitrum and told how ARB token exchange price may develop in future

After the sensational airdrop project Arbitrum (March 23), 1 billion ARB tokens were released to market. Which were distributed among 625 thousand addresses. The total market capitalization of token stabilized at $1.63 billion.

At the time of publication, the price of ARB is at $1.28. Having analyzed the experience of projects such as Optimism, Aptos and Blur, whose tokens have also entered the market as part of large-scale airdrops. Our experts told us how the rate of ARB token may behave in the future.

The general bullish trend continues

After listing on exchanges, tokens of projects with airdrops tend to exhibit high volatility. Therefore, there can be both sharp price jumps and drawdowns of tens of percent all at once. Overall, ARB is in line with the “most positive trend.” That’s because the token price didn’t collapse after the start of trading on Bybit, Kucoin, MXC, Huobi, Okex. And then on Binance, although it experienced serious fluctuations. On Huobi, the exchange rate was as high as $11 per token on listing day, though the price went down almost immediately.

First of all, such volatility is due to the fact that those who received ARB tokens during the Airdrop. And then decided to lock in profits immediately after listing, which put pressure on exchange rates. On another note, our Crypto Upvotes experts observed that a significant number of sell orders were placed well in excess of the market price, pushing the rate higher.

If you compare listing of ARB on exchanges with other large tokens with airdrop. The similarity can be seen in the high volatility at the start of trading. The major difference is the “general bullish sentiment” of investors regarding ARB. And this is favored by such data as the growth of total blocked value (TVL) of Arbitrum network by a quarter during the last week. According to DefiLlama, Arbitrum’s TVL stands at $2.18 billion, while its closest competitor, Optimism, has $907 million of locked-in capital in its ecosystem.

Predicting the price of Arbitrum after trading starts is difficult

Starting ARB trading was marked by the fact that on some exchanges trading started a little later than announced. And also the fact that the influx of users led to disruptions in the resources for receiving tokens and on exchanges. Listing of Arbitrum on exchanges was immediately accompanied by high trading volumes, which further attracted crypto-traders. This gives big players an opportunity to form positions without much damage to the average purchase price.

Our experts note that it is difficult to predict the further development of ARB price. Because the price levels have not been fully formed yet. In the short term it is necessary to focus on the level of $1, as it will be a psychological support. In case of a positive scenario, we should be attentive at the price level of $1.5. If this level of resistance is exceeded, the price is likely to quickly approach $2.

Why airdrop Arbitrum became successful

The effectiveness of an Airdrop depends directly on marketing work that the project has done before distributing these tokens. First, the project needs to develop their community, to attract new capital. And constantly pointing to the possibility of a profitable airdrop for active participants. Under such conditions, you can talk about success – even if some of the users in the community decide to sell ARB tokens.

The effectiveness of such a model is good for the popularity a project – it’s an excellent marketing move, our experts say. In the case of Arbitrum, the popular topic media “literally bursting with news”. Because people like to get something for free, especially if it will bring good profits in the future.

However, most traders will fix some part of the received tokens, e.g. 20-30%. The rest will go into stacking or long-term storage waiting for price growth if the project really deserves it. According to experience of our experts, even now we can see that large participants of crypto market actively accumulate ARB in their wallets.

Participants of the Arbitrum airdrop project received thousands of dollars in rewards. Review by Crypto Upvotes experts on how the sphere of earning tokens for activity in blockchain services is organized and what other projects can make an airdrop.

Offchain Labs, the company behind Arbitrum, organized an airdrop of tokens to encourage active users of this ecosystem. On March 23, token trading under the ticker ARB started on major cryptocurrency exchanges, and after a period of strong volatility at the time of listing, its price on trading floors stabilized at $1.2. Tens of thousands of addresses received between 3,000 and 10,000 tokens during this distribution. Thus, participants received significant amounts of incentives in dollar terms and caused a stir around other projects. Which in the future may make their own airdrops.

Airdrop is a new form of successful project launch ?

The idea of free distribution of coins to users is not new. The first airdrop, after which the term became popular, was invented by the developers of cryptocurrency Auroracoin back in 2014 at the stage of mass cryptocurrency market birth. According to their idea, every resident of Iceland was supposed to get coins. That project was quickly forgotten, but the concept itself became popular in the crypto industry and continued to evolve.

Now, airdrops serve as an effective method for blockchain services to attract an audience. It is also likely to increase the loyalty of users who receive rewards in the form of project tokens. Some ecosystem decentralized projects, in which investors see potential, conduct multimillion rounds of funding with the participation of famous funds like Sequoia or Andreessen Horowitz.

What is Project Arbitrum. And why it’s the most expected airdrops of this year

A few years ago, crypto companies chose different forms of ICO (initial coin offering) to raise capital and liquidity. Now there is a risk that tokens will be classified as unregistered securities in the U.S. or Europe when raising funds this way. The free distribution of tokens helps create a market for crypto projects. At the same time, most of their supply stays with developers and investors. At the same time, it creates a financial base for the former and a source of profit for the latter.

Developers of blockchain services often do not announce a token when launching their project. But the experience of their competitors helps community members determine which projects will sooner or later decide to release their own crypto-asset. And which types of activities will be eligible for rewards.

This was the case with Offchain Labs: an infrastructure has already been built around Arbitrum – decentralized exchanges, NFT marketplaces, games, wallets, social networks and other services. All of them are at an early stage of development and need active users and testing. It is for activity in such projects that tokens are eventually distributed.

The company remained silent about its airdrop until recently. But the successful experience of large projects such as Aptos, Blur or Optimism ( the main competitor of Arbitrum) made it clear that participation in projects on the Arbitrum blockchain. Most likely, in the end, will not remain without encouragement from developers.

From which projects to expect launch of new Airdrops

The first obvious candidate is zkSync, an Ethereum scaling solution with a different technical approach than what Arbitrum or Optimism offer. In November 2022, zkSync developer (Matter Labs) led several investment rounds totaling $258 million. And LightSpeed, Andreessen Horowitz as well as major venture capital crypto funds – Blockchain Capital and Dragonfly took part in them.

The zkSync development team includes Anthony Rose, who led engineering teams at SpaceX, creating software for Falcon, Dragon, and Starlink. And Steve Newcomb, who founded Powerset, which was acquired by Microsoft and later became part of the search engine Bing.

In one week before the launch of token from Arbitrum, users transferred $8 million in assets to projects in the zkSync ecosystem. According to DefiLlama, the amount of funds (total value locked) locked in the pool of the decentralized exchange ZigZag. Which runs on the zkSync platform, rose from $1.5 million to more than $13 million in just one day. In a comment for Coindesk, Martin Lee, head of analytics platform Nansen, says that it was the distribution of Arbitrum tokens that triggered the increased activity of “airdrop hunters.” They have attracted both new entrants and those who have participated in airdrops from other projects.

Other potential candidates for future airdrops include several other projects:

StarkWare – Ethereum scaling solution, similar to zkSync. The developer is the Israeli company StarkWare Industries, with an investment of over $150 million and an estimate of $8 billion.

Scroll – a similar Ethereum scaling solution. The project has attracted funding of $80 million with an estimate of $1.8 billion.

Fuel Network – an Ethereum scaling solution similar to Optimism or Arbitrum. The project’s developer, Fuel Labs, raised $80 million in funding in September 2022.

Aleo – DeFi-protocol with a focus on privacy. The developers of Aleo Systems raised $200 million from SoftBank, Andreessen Horowitz, Samsung Ventures and other funds.

LayerZero – a protocol for exchanging data between blockchains from different ecosystems. The company behind the development, LayerZero Labs, has raised more than $173 million, with investors including PayPal Ventures and Andreessen Horowitz.

Other major projects without their own token include Sui, Celestia, Sei, Linera and others.

Terms of participation in airdrop from similar projects

As a rule, the developers of such projects do not name any criteria or conditions, fulfilling which it will be possible to get tokens in the future. Moreover, none of them guarantee the availability of airdrop for early users or the launch of a token. Activity sets are formed in the community based on the experience of predecessor projects. And when an airdrop is announced, the project team decides for itself each time who can claim their tokens and for what.

Some projects have even given away tokens for a single interaction with the ecosystem. And in the case of the Blur Marketplace, for example, a full-fledged multilevel airdrop strategy with a gamified approach was developed.

Risks from participation and scammers

Anonymity when using cryptoservices opens the door to manipulation. According to a joint study by journalist Colin Wu and the blog x-explore, about 150,000 addresses and at least 4,000 groups were identified in the Arbitrum airdrop.
Which are engaged in activity generation, which accounted for more than 253 million ARB tokens. And that’s about 22% of the entire airdrop.

There is growing evidence on the web that organized groups typically in countries such as Vietnam or Bangladesh – are scamming activity in blockchain projects. They use multiple accounts and wallets, working in offices on a schedule and getting paid. Our Crypto Upvotes experts managed to find several international groups in Telegram and Discord messengers. In these groups administrators offer services of “outsourcing” activity. Prices for the services range from $10 to $200 per account, depending on the project and activity set.

The growing popularity of cryptocurrency airdrop is being actively exploited by scammers. Interacting with blockchain projects implies a certain level of technical expertise. Therefore, inexperienced users often become victims of scammers. Tens of thousands of phishing pages appear on web that imitate sites of famous projects.

Sometimes these sites are designed with attention to detail and have high-quality design and convincing scenarios of interaction with the victim. It helps to avoid risks by interacting only with the official resources of the services. Where they also post links to ecosystem projects in which it is possible to participate, claiming a future airdrop.

You will only be able to buy NFTs through your Amazon account with a bank card. Crypto-Upvotes expert review

The Amazon NFT Marketplace will launch on April 24, according to TheBigWhale. At first, a service called Amazon Digital Marketplace will be open only to U.S. users. But in future, customers from other countries, including Europe, will have access to it.

At launch, the site will feature 15 NFT collections. It will only be possible to buy NFTs through an Amazon account with a bank card. This method of payment was chosen to make it convenient for customers to use the service in the traditional way. At the same time not tying cryptocurrencies like Metamask to it.

To host a marketplace, Amazon chose a private blockchain platform that is not compatible with Ethereum. Therefore, developers who want their NFTs to be available on the new platform will have to use blockchain bridges (tools to transfer tokens between different networks).

Our experts note that Amazon is preparing to launch its own NFT-platform, it was reported in early January. At the time, it was known that US online retailer was considering launching blockchain games. Participants in such games will be able to receive digital tokens, and it plans to hold at least one NFT airdrop.

SEC accused the Hydrogen platform of illegally distributing securities. Including through Airdrop

The U.S. Securities and Exchange Commission ruled that Airdrop (the free distribution of tokens) are illegal means of distributing securities. The charges against Hydrogen Technology Corporation indicate this. As well as its former CEO Michael Ross Kane and Moonwalkers CEO Tyler Ostern.

An SEC lawsuit says that in 2018, New York-based Hydrogen, which had ceased operations at this point, created a Hydro token. And then publicly distributed it via airdrop. These were rewards to individuals for promoting their token, rewards to employees, and in the form of direct sales on cryptoplatforms. Likewise, the SEC alleges that Hydrogen hired South African firm Moonwalkers after distributing its token. This was done to create the false appearance of market activity regarding Hydro token. As a result of this manipulation, Hydrogen made a profit of more than $2 million.

“Companies cannot avoid applying securities laws by arranging unregistered offers and sales of their securities as rewards, compensation or other similar methods,” said SEC Deputy Director of the Division of Enforcement Carolyn M. Welshahans.

Our experts also noted that SEC has requested injunctions against defendants for participation in certain types of activities. And including the distribution of securities.

Perhaps now we are seeing the first judicial precedent that will allow a complete ban on any Airdrop

Crypto projects often hold Airdrop promotions to give away their own tokens. What to pay attention to when choosing a project in which you want to participate.

Free token distribution or AirDrop – is one of options to get initial capital in cryptocurrency. But it can hardly be considered a stable way to earn money. In fact, no one guarantees that received free tokens will bring profit.

Most of free coins from new Airdrop projects can only be profitable in the short term. Free coins from famous projects can be used in a long term perspective. However, experience with Airdrop can be a source of insight into how cryptocurrency markets work.

What is AirDrop

AirDrop is a promotion for giving away coins for free after completing necessary conditions. A crypto project holds AirDrop cryptocurrencies to raise awareness and attract new potential investors. Most Airdrop launches are new startups or large companies that promote their new products.

Cryptocurrency is credited directly to users’ wallets if they meet certain conditions. Conditions can be different, such as registration, subscription, recruiting friends, and other simple tasks.

Why crypto projects hold Airdrop

Basically, AirDrop is conducted as a marketing campaign to attract attention to the project. Cryptoprojects use giveaways as a way to increase the number of holders.

Another option for AirDrop is to give away control tokens. In addition to their monetary value, these coins give their owners a say in decisions regarding the project. The project community makes decisions by voting. And the number of votes is proportional to the number of shares each token holder has.

How not to fall victim to scammers

A distinctive feature of AirDrop is that the distribution of coins is free. If the developers of a project make participation a condition of any financial investment. Then such an offer can be a scam. Participating in a giveaway may only require a financial investment if it is a DeFi project. Which work on such a blockchain, where you have to pay a commission to a network for transactions itself.

Scammers may ask you to pay a fee to “unlock” free coins you receive. Or make them buy a small number of these tokens first. In order to get more of them in next Airdrop giveaway.

Sometimes the user is asked for credentials to log in to a scam site when registering for a program. Or cryptocurrency keys or other personal data. Having received such information, scammers immediately use it to steal funds. Using this scheme, scammers use many different excuses to obtain confidential information.

Another variant of scam is requests to download “special” software. Or providing links that, when clicked, install malware. Most often such messages come after registering on fake sites of famous projects announcing AirDrop.

Scammers also use coins with names similar to famous tokens. In such cases, user receives a large number of coins to their wallet. In fact, it turns out that in order to get these coins you need to go to a scam site and connect your wallet. But you can’t do that because as soon as you connect your wallet you lose all your money.

If a crypto project offers you a very large amount of money for doing simple tasks. Then you should also be suspicious about such a project. In any case, having decided to participate in AirDrop. You need to carefully check all information about crypto project and conditions of participation in giveaway.

Where to find information about actual AirDrop

A lot of information and advertising channels in messengers and social networks publish announcements about free token giveaways. However, it is not always possible to trust such sources of information.

The best way to learn about AirDrop may be to visit the official websites of famous cryptoprojects. Or their verified social media accounts. Our Crypto-Upvotes experts recommend you to be careful and always study projects before deciding to participate in Airdrop.