Airdrops offer billions of dollars in free money.

Yet they are never far from controversy, with users complaining about the fairness of the token distribution.

The reason?

The presence of sybil recipients, airdrop farmers who create vast clusters of wallet addresses and use them to generate large transaction footprints on crypto projects.

Now, even in a banner quarter for airdrops that shows no sign of slowing — concerns are risking apathy among so-called organic crypto platform users.

Bowed to pressure

Projects like Ether restaker Ethena bowed to pressure and tried to mollify ordinary users who felt cheated during the project’s airdrop.

But more recent airdrops from blockchain network ZKsync and interoperability protocol LayerZero have not responded publicly to complaints from so-called legitimate users who claim to have been left out.

“The farmers got millions of tokens from ZKsync, but the actual people who were doing this for two years only got 1,200 [tokens],” Farea, a pseudonymous self-styled airdrop hunter told DL News.

Sybil airdrop famers spoof legitimate activity and claiming greater-than-average shares of the airdrops, leaving ordinary users with little or nothing for their efforts.

The attacks come as projects including liquid restaker Swell, DeFi lender Marginfi, and liquid staking protocols Sanctum, have hinted at future airdrops.

A huge problem

There’s a huge problem with the airdrop mechanics, not just for users but for the projects who promise these free tokens.

Crypto projects crave organic user activity to gain a “network effect” ― when the value of the project increases with rising patronage.

Project teams dangle airdrops as incentives to attract real users. The promise of a future airdrop can be sufficient to entice crypto deposits from them.

An inflow of liquidity means an increase in so-called total value locked ― a DeFi metric used to gauge interest in blockchain projects.

Crypto projects need to grow their TVL to warrant big valuations propped up by venture capital interest.

“If you are a builder, you must launch points campaigns, because VCs demand adoption metrics to justify high valuations,” pseudonymous DeFi researcher Ignas told DL News.

But there’s a problem ― most of this TVL comes from sybil farmers who are less likely to leave their funds in situ once they receive their airdrops.

Sybil airdrop farmers tend to migrate to other projects that have yet to distribute tokens.

Several projects, including Wormhole and LayerZero, experienced enormous declines in user activity post-airdrop.

Meanwhile, the real users more likely to display fidelity to these projects reported receiving little reward for their onchain activity.

“Whales spend a lot of money to write scripts and farm hundreds of wallets. Retail users do one or two wallets so they don’t get the actual prize they should get,” Farea said.

A new era

Despite the mounting disillusionment, the consensus among DeFi experts is that project teams must develop new strategies for token distribution.

“Airdrops are the evolution of the way we issue new tokens to the market. Every cycle, we find a new way to print tokens,” Ignas said.

The current points meta popular among DeFi projects has glaring drawbacks amid sybil capture and poor user retention.

“The golden age of airdrops is over,” pseudonymous crypto analyst Wazz posted on X earlier this week.

There is a growing call for project teams to rethink airdrops and devise reward systems that do not overlook early adopters and maintain interest after the token distribution event while attracting new entrants.

This is easier said than done, especially as sybils have become so entrenched in the system that it might be impossible to remove them.

For experts like Ignas, some possible solutions include a vesting period for airdrops to reduce the mass dumping that follows them.

Also, projects can plan multiple airdrops, a method already being adopted by the likes of liquid restaker Etherfi.

Regardless, experts say no airdrop strategy is flawless and complaints inevitably arise.

“I recommend using protocols that they genuinely find interesting,” Ignas said. “My best airdrops came from genuine curiosity and clicking buttons.”

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.