The witch-hunting operation has turned into a war of denunciations, and the 'Human Tragedy' airdropped by LayerZero

What was thought to be an airdrop that would bring benefits overnight has turned into a great battle that concerns human nature.

On June 11, in response to the ongoing witch review work on LayerZero, LayerZero co-founder Bryan Pellegrino announced on X platform that the final list of witches will be released by the end of June, and once again emphasized that the review will focus on real users and fair distribution.

Seemingly in line with the identity of the project party, the speech still caused a lot of condemnation in the community. As for this grand witch hunt, the market has mixed reactions, with both strong support and cynical remarks.

And to clarify the joints, we need to start with LayerZero first.

As a star project in the cross-chain protocol, it is not an exaggeration to describe LayerZero as being born with a golden key.

LayerZero was founded in November 2021, during a bull market, when capital was particularly fond of infrastructure. It was also a period when cross-chain interaction technology was most followed, with the initial establishment of cross-chain asset ecosystem. However, the data transmission field beyond this was relatively blank.

LayerZero, just hit this point, unlike the cross-chain bridges on the market at that time, it chose an oracle machine network instead of the traditional continuous stream transmission of cross-chain, outsourcing the burden of transmitting verified on-chain information to third-party oracle machines, and adopting a light client form, with easy-to-use and low-cost features.

Despite the founding team being Canadian, the core members have all been educated in the United States and have extensive industry backgrounds. In this context, Wall Street star FTX quickly connected with the project. In March 2022, LayerZero’s development team, LayerZero Labs, announced the completion of a $135 million Series A+ financing led by FTX Ventures, Sequoia Capital, and a16z, with a post-investment valuation of $1 billion. With the support of prominent investors, LayerZero became a rising unicorn in the crypto industry in less than 5 months of its establishment.

In the following year, under the protection of capital and promotion by industry KOLs, LayerZero developed rapidly, with integration and use in over 50 projects covering various directions such as DeFi, NFTs, stablecoins, etc. Even FTX’s collapse did not have a huge impact on it. In April 2023, LayerZero completed another $120 million Series B financing, with a valuation of $3 billion. In addition to the original capital, traditional capital such as Christie’s and Samsung also supported it.

At that time, LayerZero announced that it would consider an airdrop of governance tokens. After this announcement, the community responded strongly. The combination of major capital, high valuation, and top projects often signifies substantial feedback in the form of airdrops. Influenced by this, airdrop hunters quickly targeted it, and individuals and gold farming studios flocked in. According to dune data dashboard, since April last year, the on-chain interactions of LayerZero have surged, with daily transaction volume exceeding 200,000, and peaking at 490,000 in a single day. The high-frequency interactions not only brought impressive data but also abundant income. Taking the first cross-chain DApp Stargate launched on LayerZero as an example, the protocol’s monthly revenue exceeded $1 million, and this is just one product within the ecosystem.

Looking forward to it, LayerZero’s Airdrop expectations have never ceased, and there have been frequent Airdrop information in the next year, but they have been continuously postponed. Finally, on May 2nd of this year, LayerZero officially announced that the first snapshot on the X platform has been completed, and the market sentiment has reached its peak. Many users on social media platforms said, ‘The big one is coming.’

The fact is indeed so. According to WOO X Research’s prediction, the airdrop value conducted by LayerZero will be between 6 billion and 10 billion US dollars. With a conservative estimate, TGE at a valuation of 4x and an initial circulation of 15%, FDV is 120 billion US dollars, so the airdrop value is expected to be 600 million US dollars, which translates to a value of 750 to 1500 US dollars per user. In the optimistic forecast, with a circulation of 20% and TGE at 4.5x, FDV is 135 billion US dollars, and the expected airdrop value will increase to 1.08 billion US dollars, with the average value per user ranging from 1350 to 2700 US dollars.

But just as users were immersed in cheers and hoping for another airdrop to benefit, Layer Zero delivered a blow. On May 3rd, Layer Zero issued an official announcement stating that the airdropped tokens were about to be released, but to ensure the persistence of airdrop users, a token distribution plan would be formulated, and a month-long witch-hunt operation is expected to be launched.

Witch hunts are not uncommon, especially in airdrops, where witches typically refer to a single entity using a large number of accounts to conduct meaningless or extremely small transactions to obtain interaction data for airdrops. Considering that Layer Zero has a user base of up to 6 million, it is understandable to conduct witch hunts to protect the interests of the project and users.

But in this witching operation, there is a very strange ‘bounty reporting mechanism’. According to the official announcement, the witching operation will be divided into three stages. The first stage is a 14-day self-exposure stage, during which users can voluntarily expose their witching behavior. The official will reserve 15% of the airdrop distribution for such accounts; the second stage is the official review stage, during which LayerZero will screen for witches according to specific rules. Accounts discovered during the official review will not receive any airdrop allocation. The most controversial is the third stage - the bounty reporting stage, which will run from May 18th to May 31st. Anyone can submit a report on Github, and successful reporters will receive 10% of the airdrop allocation from the reported account, while the remaining 90% will go to the airdrop pool, and the reported account will receive nothing.

Reporting each other is undoubtedly a test of human nature. In fact, although everyone knows that reporting does not maximize benefits, in the absence of knowing whether others have reported themselves, according to the prisoner’s dilemma, the most appropriate choice is to report others to obtain an additional 10% share. In this case, human nature is greatly magnified, and a wave of reporting has swept the market, followed by various incidents.

The Luma Studio has become the first victim. Some small studios claim that more than 200 of their premium accounts have been labeled as witches, and even employees have left and reported their former companies for personal gain. Security companies have also shown their skills, and there are rumors in the market that a certain organization has provided LayerZero with 480,000 addresses at one time. There are also frequent rumors and reports, and Bryan Pellegrino, co-founder of LayerZero, has stated that not every report is valid. Due to the excessive number of reports submitted, multiple reporting accounts were once considered spam accounts by GitHub.

From the final result, the witch hunt has achieved impressive results. In the first round of self-exposure, 803,000 addresses were identified as potential witches, with over 338,000 addresses self-reporting as witches. During the reporting process, LayerZero received 3,550 witch hunt reports, each report containing at least 20 addresses indicating witch operations. During the review process, Bryan Pellegrino revealed that out of the 6 million initial wallets, 3 million wallets had sent less than 5 transactions, reducing the weight of transactions involving less than $1 and worthless NFTs by 80%.

Looking back at this grand witch hunt, there is no shortage of controversy in the market, but each party involved seems to have their own reasons.

For the project party, the demand for interaction only for airdrops is not considered valid. After the airdrop distribution is completed, these users are likely to sell off and move on to the next target, rather than being actual building holders. The large-scale selling pressure will also affect the token price and further hinder ecosystem development. Similarly, after the snapshot, LayerZero’s daily trading volume sharply decreased, falling to 27,000 transactions on June 7, reaching a new low in nearly a year.

However, for users or studios who actively contribute and provide valuable interaction data for the project, this is undoubtedly a betrayal by the project party, as they have made substantial contributions and provided samples for project optimization, clearly fulfilling the role of a builder.

The community is more concerned about the use of this reporting mechanism, and whether such aggressive witch-hunting behavior is worth advocating. There are different opinions in the market on this issue. Supporters believe that out of responsibility to early users, the project should not encourage witch-hunting behavior, and being anti-witch is politically correct, as no user would want witches to be involved in the project; opponents emphasize that the rules are too strict and the behavior is unsightly, and without testers and contributors, the project will be difficult to continue.

Interestingly, Zksync recently announced that it will release an airdrop next week. Although it has not yet launched a large-scale witch sniper, it has also been widely criticized. Among the 690,000 addresses that received the airdrop, not only are the details of the airdrop relatively vague, but there are also multiple witch addresses that have already been checked. According to the witch hunter Artemis, some rat trading accounts obtained more than 2 million ZK tokens by depositing the same amount of Ethereum on the same day, and almost all accounts have been marked on the LayerZero witch list. Therefore, it is indeed necessary to detect witch activities.

Returning to the airdrop itself, looking at the evolutionary history of airdrops, it is not the first time that the abnormal dependence relationship between the project party and the fluff party has been discussed.

Airdrops were first used in the Auroracoin project in 2014 and then developed during the ICO boom in 2017. However, it was not until the rise of DeFi in 2020 that Uniswap truly ignited this activity. In terms of development, airdrops have gone through a path from easy to difficult, from being available by joining the community initially, to registration-based acquisition, from simple interaction to deep interaction, and then to witch selection of heavy users and fund blending verification. Nowadays, airdrops can be described as increasingly challenging, not only are large-scale airdrops rare, but the funding threshold is also increasing. Various odysseys make it possible to describe users with PUA.

As for why the project needs to use PUA, the reason lies in the fact that most Web3 applications have little effective demand and very few early users. In order to gain user traction and interaction revenue, projects have to stimulate user usage through various activities, and airdrop is the most effective way. After 20 years, the benefits of airdrops have become prominent, and Apecoin, DYDX, Arbitrum, ENS have successfully helped many early users realize their dreams of getting rich.

Under the influence of the benefit effect, since the birth of the airdrop, the shadow of the wool party has been following closely. Up to now, the increasing difficulty of airdrops has driven the wool party to develop in a professional, institutional, and large-scale manner, forming a complete wool industry chain. Studios will allocate professional teams for investment research, anti-witch technology, interaction, etc., and some will also make significant investments in projects. From a certain perspective, the wool team has even gradually become a participant in the project’s primary market.

In this process, the project and the ‘撸毛党’ are constantly engaged in a battle, and the ‘撸毛党’ frequently experiences being counter-‘撸’, maintaining a tense and delicate balance between the two. It can be said that this is the current airdrop situation for all projects, as well as the fundamental reason for the controversial aggressive witch measures. However, in the long run, the aggressive bounty mechanism of this LayerZero still has the potential to be widely used in large projects.

Returning to another core issue, if we exclude the stimulative effect of airdrops, there is still doubt about whether the project truly has a valid demand. Projects that lack long-term value rely on airdrops to attract short-term users, but ultimately they will decline. This is also one of the reasons why many well-known projects keep extending their coin issuance timeline and take tough measures against witchcraft. Compared with the Web2 industry, airdrops are quite similar to the subsidy wars in the internet sector. However, airdrops require users to invest first and then the project provides subsidies, while traditional internet subsidies initially target demand and reduce the scope of subsidies after the formation of network advantages. There are also projects that go skinny-dipping after the subsidies end. Ultimately, the survival of a project depends on its self-sustaining ability.

Anyway, the increasing cost of long-term grooming is an inevitable trend. The studio has long foreseen this, and as long as airdrops remain profitable, the evolution of the studio will continue. For individual users, although the secular notion that ‘free is the most expensive’ holds true in encryption, airdrops are indeed one of the most cost-effective ways of input and output. Unfortunately, with airdrop rules increasingly dominated by capital points, leaving little room for user interaction, the so-called ‘long hair’ interaction may indeed be scarce.