Token issuance is a critical moment in a project’s history. If the token issuance is messed up, the project may end.
Nothing can destroy the credibility of a token offering faster than a Sybil attack. In this type of attack, malicious actors create multiple false identities in an attempt to gain disproportionate influence and token distribution in the network.
No one wants to see a fake community.
Next, we will explore how Sybil attacks affect token issuance through two recent airdrop cases: ZKsync and LayerZero.
ZKsync
Image source: coinlist
ZKsync, an Ethereum Layer 2 scaling solution using zero-knowledge proofs, was one of the most anticipated airdrops in 2024. However, it received its fair share of criticism due to its lack of witch precautions. For example, Mudit Gupta, chief information security officer at Polygon Labs, commented on X:
The ZKsync airdrop has been released.
This may be the most farmable airdrop ever.
As far as I know, very little Sybil filtering is done.
Anyone who understands the standards can easily acquire them in large quantities.
This makes it even more understandable what LayerZero is doing with Sybil filtering.
Source: X
Adam Cochran, a partner at Cinneamhain Ventures, expressed similar concerns:
I like the team at ZKsync, but this airdrop was really not well planned from a Sybil prevention perspective. These standards are easy to miss for real users, but easy to achieve for "farm" users, and there are no anti-Sybil measures. With projects so new on the chain and the number of projects limited, real users may only use 1-2 dapps or hold a small number of tokens. If the project does not want those "speculators" who sell quickly, it needs to put more thought into this aspect.
Source: X
ZKsync network activity
Within one month after ZKsync was airdropped to users on June 17, 2024 (as of July 17, 2024), the number of active addresses on the network decreased by approximately 78.7%. This shows that most users are just looking for airdrops and then abandon the project.
Source: Dune
The daily depositor count also shows a similar trend – on July 17, 2024, there were just 32 depositors, compared to a peak of 41,257 on March 25, 2023.
Source: Nansen
Following the airdrop, over 40% of ZKsync primary recipients sold their entire allocation of tokens, and 41.4% sold part of their allocation. Currently, only 17.9% of these major recipients still hold their tokens. According to @CryptusChrist, 746 known Sybil attackers received approximately $6.9 million in $ZK tokens in the airdrop.
Source: Nansen
$ZK Price Trend
Unfortunately, the sell-off of $ZK - most likely orchestrated by Sybil attackers - intensified the selling pressure in the market, causing the token price to drop between the user airdrop date (June 17, 2024) and July 2024 It dropped approximately 39.29% between the 23rd.
Source: CoinGecko
So, what exactly is wrong with ZKsync? First, the team’s air-voting eligibility criteria are relatively easy to exploit by Sybil attackers, and there is a lack of effective Sybil prevention measures. Additionally, ZKsync excludes certain legitimate users, such as projects that build on the ZKsync Era and directly contribute to its ecosystem.
Now, their team needs to redouble their efforts to recapture the significant price speculation driven by the Sybil attackers’ fake activity.
LayerZero
LayerZero is an interoperability protocol designed to facilitate seamless communication and asset transfer between different blockchains. Unlike the above two examples, LayerZero implements strong witch prevention measures.
Image source: coinlist
According to Bryan Pellegrino, CEO of LayerZero Labs, the team ultimately identified 1.1 million to 1.3 million unique Witch wallets during the Sybil self-reporting and analysis phase, and their team continues to engage and reward the community for reporting Sybil attackers.
LayerZero’s online activity
The number of messages on LayerZero dropped by 91.5% between April 30, 2024 (the day before the snapshot date) and July 7, 2024.
Image source: LayerZero Scan
Likewise, the number of daily transactions also dropped by more than 92% between the snapshot date and the airdrop date.
Source: Dune
Part of this decline is because users typically cease activity after the snapshot date as they no longer need to trade to obtain short equity. However, the aforementioned team's approach to Sybil prevention may also have impacted this drop, allowing them to airdrop with fewer Sybil attackers.
ZRO Price Trend
From June 20, 2024 (the airdrop date) to July 18, 2024, the price of LayerZero’s native token $ZRO dropped from $4.79 to $4, a drop of approximately 16%. This decline is significantly lower than ZK's 39% decline over a similar time period. Notably, ZRO’s price eventually exceeded its initial listing price, despite a decline in LayerZero’s online activity.
Source: CoinGecko
While it's difficult to pinpoint all the factors behind LayerZero's relative price stability, its witch-proof technology may have played a role.
Why should builders care about witch prevention?
In the short term, Sybil attacks may appear to be beneficial to projects, as they can artificially boost data and generate instant profits.
However, as the examples above illustrate, the introduction of a Sybil attack can lead to token selling and a drop in network activity – both of which can erode a project’s long-term sustainability.
When Sybil attackers are removed, legitimate participants have more opportunities to participate and contribute because the removal of fraudulent entities frees up valuable slots.
Most teams launching via airdrops will need to redouble their efforts to re-engage significant price speculation and online activity driven by fake activity. No one wants to see a fake community.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reproduced with permission from: "Deep Wave TechFlow"
Original author: Builders, CoinList
