How Sybils Harm Token Launches

A token launch is one of the most important moments in a project’s history. If you mess up your token launch, it’s likely over.

Nothing destroys the credibility of a token launch faster than sybil attacks, where a single malicious actor creates multiple fake identities to try to gain disproportionate influence and token allocation in a network.

No one wants a ghost community.

Below, we’ll explore how sybils harm token launches by looking at data from two recent airdrops: zkSync and LayerZero.

zkSync

zkSync, a Layer 2 scaling solution for Ethereum that employs zero-knowledge proofs, emerged as one of the most anticipated airdrops of 2024 — yet has since faced considerable criticism around their lack of sybil prevention. For instance, Mudit Gupta, Chief Information Security Officer of Polygon Labs, commented on X:

Adam Cochran, a partner at Cinneamhain Ventures, expressed similar concerns:

zkSync’s Network Activity

Between zkSync’s airdrop date for users (June 17, 2024) and July 17, 2024, the number of active addresses on the network went down by approximately 78.7%. This decrease suggests that a large percentage of users were only interested in receiving the airdrop and abandoned the project shortly after.

The daily depositor count reflects a similar pattern — it reached a mere 32 on July 17, 2024 after peaking at 41,257 on March 25, 2023.

Following the airdrop, more than 40% of top zkSync recipients sold full allocation, and 41.4% sold partial allocation. Currently, only 17.9% of these top recipients are still holding their tokens. According to @CryptusChrist, 746 known sybil attackers were eligible for approximately $6.9 million in ZK tokens in the airdrop.

ZK Price Movement

Unfortunately, the dumping of ZK — likely orchestrated by sybils — contributed to selling pressure, which led to an approximate 39.29% decrease in the token’s price between the airdrop date for users (June 17, 2024) and July 23, 2024.

So, where did zkSync go wrong? First, the team’s airdrop eligibility criteria were relatively easy for sybils to game, and there was a lack of sybil prevention. Additionally, zkSync somehow appears to have excluded certain legitimate users from their token distribution, such as projects built on zkSync ERA that directly contributed to their ecosystem.

Their team will now need to work twice as hard to re-capture the inflated activity performed by sybils that drove significant price speculation pre-launch.

LayerZero

LayerZero, an interoperability protocol designed to facilitate seamless Contrary to the above two examples, LayerZero, an interoperability protocol designed to facilitate seamless communication and transfer of assets between different blockchains, implemented strong measures against sybils.

According to Bryan Pellegrino, CEO of LayerZero Labs, the team eventually identified between 1.1 and 1.3 million unique sybil wallets during their sybil self-report and analysis phase, and their team continues to engage and reward their community for reporting sybils.

LayerZero’s Network Activity

Between April 30, 2024 (the day before the snapshot date) and July 7, 2024, the number of messages on LayerZero dropped by 91.5%.

Likewise, daily transaction count also declined by more than 92% between the snapshot date and the airdrop date.

This decline is in part due to the fact that users often cease activity after snapshot dates due to no longer needing to transact to be eligible for an airdrop. However, it's also possible that the team's sybil prevention methods described above also influenced the decline, allowing them to airdrop with fewer sybils.

ZRO Price Movement

From June 20, 2024 (airdrop date) to July 18, 2024, the price of LayerZero’s native token, ZRO, experienced an approximate 16% decrease from $4.79 to $4, a significantly lower drop than seen by ZK (39%) in a similar timeframe post airdrop. Interestingly, though LayerZero’s network activity dropped, ZRO’s price eventually surpassed its initial listing price.

Although it is difficult to determine all the factors involved in LayerZero’s comparative price sustainability, its sybil prevention techniques likely played a part.

Why Should Builders Care About Sybil Prevention?

In the short term, sybils might seem advantageous for projects, as they can artificially boost numbers and generate immediate profits.

However, as illustrated in the examples above, onboarding sybils may lead to token selling pressure and declining network activity — both of which erode a project’s long-term sustainability.

When sybils are offboarded, legitimate participants have more opportunities to engage and contribute, as the removal of fraudulent entities frees up valuable spots.

Most teams that launched via airdrops will need to work twice as hard to re-capture the inflated activity that drove significant price speculation and network activity pre-launch. No one wants a ghost community.

At CoinList, we take sybil prevention very seriously by verifying the legitimacy of devices and browsers, analyzing IP addresses, screening for bot-like and unusual activities, assessing email addresses for legitimacy, and ensuring each participant is a unique and verified individual.

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