Welcome to Valid Points. In today’s issue, Sam Kessler not only dives into the messiness of crypto airdrops, but also raises the question whether the crypto space should ditch the airdrop distribution model. To read the full Web version of this article, please click here.
It’s been around a week since the Arbitrum airdrop, when the largest Ethereum layer 2 platform by transaction volume distributed its long-awaited governance token to community members.
What’s clear by all accounts is that while users managed to successfully claim over $1 billion worth of tokens, the process was anything but smooth – mired by bugs, frustrations and scammers looking to take advantage of the chaos.
An “airdrop” is when a crypto project doles out free tokens to users in a bid to encourage adoption and jumpstart the marketplace for a new asset. Arbitrum is a network that allows users to transact on Ethereum with lower fees; Offchain Labs, the network’s creators, introduced the “ARB” token to grant Arbitrum users the ability to vote on changes to the protocol.
Any airdrop is an event. This one, which came amidst a market downturn and a regulatory crackdown on the crypto industry, seemed timed to lift the crypto community’s spirits just when they were at their lowest. Certainly, the free money didn’t hurt; many ARB claimants rushed to sell their new tokens on crypto exchanges for a healthy reward.
But from the outside looking in, the Arbitrum airdrop was plagued by bugs and seized on by predators who, a week on, continue to use the project’s likeness to promote phishing scams. Spoof Arbitrum accounts became so prolific on Twitter, in fact, that the real Arbitrum account was briefly suspended after it was erroneously flagged as spam.
As another possible airdrop looms on the horizon – that of the Ethereum scaling platform zkSync – and regulators continue to ramp up scrutiny of token-based projects, it may be time to consider whether the airdrop model is so inherently messy (and so thoroughly mired in a gray area of securities regulation) that some protocol teams might need to find other ways of incentivizing new users and raising funds.
The airdrop fiasco: There was a week-long period between when the Arbitrum airdrop was announced and when investors were allowed to claim their ARB tokens. In that week, crypto Twitter descended into a kind of frenzy, with people speculating about the token’s eventual price on the open market (will ARB trade for $1? $10?) and gloating about how many tokens they were set to receive (ARB was apportioned to users according to their past usage of the platform).
But when the airdrop finally went live on Thursday, the upbeat scene on Twitter quickly turned chaotic.
In the hours leading up to the airdrop, Arbitrum’s block explorer and the website for claiming tokens crashed in response to high server demand. Those who managed to complete the claim process successfully – usually by executing commands directly onto Arbitrum smart contracts – were forced to pay extraordinarily high gas fees because of the influx of network activity.
The high fees and service outages made it impossible for some users to claim their tokens altogether.
Despite the trouble, around half of eligible ARB claimants managed to nab their share within just an hour of the airdrop’s opening. But the airdrop wasn’t just plagued by inconvenience – it was also seized on by criminals.
For months leading up to the airdrop, even before there was official confirmation of an ARB token, scammers were spinning up spoof Arbitrum airdrop links and promoting them on Twitter, Discord and Telegram in an effort to phish unwitting investors – gaining access to their crypto wallets and sensitive personal data. Before the airdrop went live, more than 10,000 people fell prey to fake Arbitrum airdrop schemes, according to at least one analysis shared with CoinDesk by the Web3 antivirus firm De.Fi.
Scammers cast out even more Arbitrum phishing lures once the real airdrop went live. Even now, a week after the ARB claim window opened, virtually any crypto-adjacent tweet that gains modest traction can expect to be flooded with responses from accounts promoting fake ARB claim links. One attacker even managed to compromise the account of an Arbitrum Discord moderator, using it to promote a phishing scam to community members.
And criminals haven’t just employed phishing tactics to fleece would-be ARB holders. According to one analysis, an attacker managed to loot $500,000 worth of ARB tokens by hacking into a third-party service used by some eligible claimants.
With so many users falling prey to ARB scams before the Airdrop, there’s no telling how many users may have been scammed since the drop went live.
Pulse Check
The following is an overview of network activity on the Ethereum Beacon Chain over the past week. For more information about the metrics featured in this section, check out our 101 explainer on ETH metrics.
Disclaimer: All profits made from CoinDesk’s Eth 2.0 staking venture will be donated to a charity of the company’s choosing once transfers are enabled on the network.
WHY IT MATTERS: Lido, the largest decentralized finance (DeFi) protocol by total value locked, unveiled plans to release a non-fungible token (NFT) representing a user’s withdrawal request amount as part of the process of unstaking their ether (ETH). Once a user requests a withdrawal, they will receive a Lido-issued NFT representing their withdrawal request. The user can then use the NFT to claim their ETH rewards, after which the NFT is burned.
WHY IT MATTERS: In a blog post, the team behind Linea said that “Linea represents the next evolution of ConsenSys zkEVM, powering a new generation of dapps built on Ethereum.” ConsenSys also tweeted that Linea would natively integrate its widely used MetaMask wallet and Truffle, its developer toolkit. Zero-knowledge (ZK) technology is seen by many as the ultimate expansion system for blockchains by increasing the speed of transactions and reducing their fees.
WHY IT MATTERS: ZK-rollups are 2023’s hottest blockchain trend. Polygon, an Ethereum scaling platform, released its zero-knowledge Ethereum Virtual Machine beta to the public Monday, while Matter Labs opened its zkSync Era to general users. The competition among developers to reach market first with a zkEVM has been a source of intense speculation this year in blockchain tech circles. Alex Gluchowski, CEO of Matter Labs, told CoinDesk, “ZK rollups are the Holy Grail of scaling Ethereum but, obviously, only if you can preserve compatibility with the existing ecosystem.”
Factoid of the Week
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Open Comms
Valid Points incorporates information and data about CoinDesk’s own Eth 2.0 validator. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.
You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is:
