LayerZero Fought the Sybils and Airdropped Its Token. Did the Team Win?

Transcript

And yes, you you have some tails of 20% 10% of these people who are like really bought in and interested in the thing that you're doing. But you just have this ball of money or activity that's just jumping around. And so there's just this disconnected relationship between give us give us these tokens and we release so many tokens we're giving and how we're doing it. It's like wait give us more tokens. Like if you don't give us more than the community is going to hate you. And there's there's so much entitlement. Hi everyone. Welcome to Unchained, your no-hype resource for all things crypto.

I'm your host Laura Shin, author of The Cryptopians. I started covering crypto 9 years ago and as a senior editor at Forbes was the first major media reporter to cover cryptocurrency full-time. This is the June 21st, 2024 episode of Unchained. With iTrust Capital, you can buy and sell crypto in a tax-advantaged retirement account. Enjoy significant tax advantages, 24/7 access, and the industry's lowest fees. Polkadot is the original and leading layer zero blockchain with over 2,000 plus developers. And the Polkadot 2.0 upgrade will be a massive accelerator for the ecosystem. Join the community at polkadot.network/ecosystem/community.

[Music] Today's guest is Bryan Pellegrino, co-founder and CEO of LayerZero Labs. Welcome Bryan. Hello, Laura. Thank you so much for having me back again. Congratulations on what has definitely been at at the very least an interesting airdrop. Um and it's up to um I guess the individual to decide whether or not it's successful, uh which we will dive into. But let's start with kind of the main uh aspect of this that everybody's been talking about, which is that LayerZero decided to do an anti-Sybil campaign.

So, why did you decide to do that? What kinds of problems were you trying to solve with airdrops? Yeah, I mean I I I think the biggest thing is obviously when you do like your initial distribution, uh it's it's pretty important. So, you know, how how are you going to take a bunch of people who have like let's say the protocol is a resource. It's this this this token that wants to distribute and the best like the best thing for the protocol is to get it in the hands of the most maximally aligned people. You want the people who have been extremely supportive and will continue to be supportive, the best developers are going to have been building around the ecosystem just because they love it and you want them to have like this this uh interest or say or vote or stake or whatever it is

in the in overall network. Uh and so you're really trying to like back into that end set up, right? That end set up is like have have a great distribution of people who are like extremely aligned. And then the problem is uh in in our case at least is uh there's this massive massive uh meta just like of the airdrop farming. And this for us is, you know, we we launched back in 2022 and I remember when we hit our first um you know, even our first like thousands of messages we were excited and it took us almost a year to hit a million messages. And then all of a sudden uh there became all of the you know, airdrops became just extremely popular and so we had this crazy surge in traffic where all of a sudden we were doing almost a million messages a day.

Um and that was like, you know, we we never said anything, we never mentioned anything. It was just like people started to place but it was right you know, what we raised this this really large rounds. I mean we raised a round at a billion and then a round at three billion. And people started saying oh of you know, of course they're going to do a token soon and if they do a token of course they're going to do this. And so um you know, we better we better start farming. And so we you know, had 133 million messages over 70 chains. There were six million unique wallet addresses. And so it was just like a total mess and a lot of those are just uh they're just bots. They're just these accounts who are are Sybil farmers. They're single single entities who are controlling you

know, we found clusters of like 50,000 plus accounts uh controlled by one person. And so if you look at a lot of the distributions recently, a lot of them just go go to these people. You don't get any of the users that you want. Uh they get the supermajority rewards. They dump the rewards and then you know, the the people who you were supposed to be rewarding end up uh end up getting nothing. And so uh we decided to take sort of this um pretty contrarian stance that this is this is a a bad thing uh in in the industry overall and that we you know, we want to have real users, we want to have durable users, you back into that. And then it became a question of like how how do you actually solve for that? And I'm I'm you you tell me how much you want to dive

into that, but that in itself has been a a whole other journey and I I think I've learned more about Sybil and detecting Sybil uh than I ever thought that I would. Uh but I've spent like a month doing nothing else but that and it has been very interesting. Yeah, well, tell us you know, how you were thinking about this and how you came up even just with that initial announcement of you know, 0% if you don't self-report, 15% if you self-report like how did you come up with all that? Yeah, so again I I I when it came to how are we going to detect all the Sybil? Like the whole point of the Sybil is try to seems human. It's supposed to be very hard.

There's people who are are waking up in the middle of the night and like have all of these accounts on different time zones and they're doing you know, they're doing using all of these sophisticated tools. And so there were a couple of things that I thought were very interesting. One, uh we know that there are these very large clusters and people share uh software. So they sell software, they share software, they share sort of farming strategies because uh it's not too adversarial between each other. Um because they're they're sort of like adversarial I guess with the distribution of the project. And so the self-report was to say I know us ourselves we're never going to be able to find all the Sybil. It's an impossible task. We'll always be cat and mouse, you'll never be able to get them all.

But if you give people an offer where they have something at risk, where you're saying if you don't self-report, you will get zero. If we find you, if Nansen finds you, all our partners, all these bounty hunters find you, zero. But if you self-report now, then you're going to get 15%, right? And no no questions asked, whatever you you know, 15% done. And then if some of those massive groups have individual people who turn themselves in, if they have somebody who is running infrastructure for them who decides uh hey, I'm getting paid not that much and if I report my you know, my entire bosses studio or cluster, uh then I can just take the whole 15%. There's a lot of very interesting incentives that come in. And then you can use that data set uh to basically detect all all of the other Sybil, right? So the whole point of that

was to bait out subsets of these Sybil that then you can use as like um uh basically a a data set, a training set uh on on detecting more Sybil. So that was it was self-report and get 15% or after you get nothing. We are going to try ourselves, Nansen and Chaos are going to try to go out and detect Sybil on our own. We're going to do our best. And then we're going to open it up to the world and say hey, any Sybil that we missed, if you can prove it conclusively, you the bounty hunter, will get 10%. Um and that uh was messy, very messy, but very interesting. So uh the Sybil sort of struck back. Uh we opened up GitHub. GitHub had been used very um frequently before. Hop used it to do it, Connects used it to do it. So you you

know, had been used as this um Sybil reporting platform before. And the Sybil basically just completely nuked GitHub. So we had 9,000 people produce reports. They were producing fake reports and at the same time they were reporting the GitHubs of every person who was putting up a valid report. So of the 9,000 that got uh submitted to GitHub, I think almost all of them had their GitHub accounts banned. We had it you know, everything then got delayed for multiple days. We had we got escalated to like the very top of the food chain at GitHub and they're just like we I can't really do that much for you.

Uh and so we had to you know, reopen the entire process with the almost a week of wasted time in Commonwealth and get everyone to upload there and to avoid the problem of of Sybil basically producing fake data for you to go through. Uh we said you know, you have to you have to put up 0.5 ETH. So put up half an ETH if you believe in your report. If we think it's not in good faith, we're going to burn that ETH. We won't take it, we're not going to keep it, we're just going to burn it. But you're going to lose your ETH. If you made a good you made a best effort good faith report, even if it's not valid, if we find it's not conclusive, you'll you'll get your 0.5 ETH. And so even doing that 469 reports were submitted. So 469 people

bonded ETH. They produced 3,800 threads in Commonwealth. And those threads contain 22,000 clusters. And all of these were like completely different methodologies. So if you're following my Twitter you know, you you have these things that look like that look like like World War II sort of like sonograms you're listening for. You had people doing these crazy clusters, all these visualizations. Uh and it was like a really really difficult task to go through them all, but it was it was so interesting. And people are just amazing. Like some of the sleuths and some of the the analysts who participated in were were really just like an unbelievable. I've had so many people from the security community reach out and say we don't even care if you catch the Sybil, if you don't catch the

Sybil. This existing in the world, this data set for everybody able to go through and look and have uh is just like a massive public good. I'm I'm so happy for that. Wait, and so I I'm sorry, I didn't follow the GitHub thing. So what happened was that some of the Sybils were fighting back and trying to produce fake data for the bounty hunters so they wouldn't get caught. Is that what what that was? So they So let's say you have a thousand honest bounty hunters who are are submitting and we're going to have to go through the reports. The Sybil produced 8,000 reports and submitted them to GitHub. So now that you have fake stuff mixed in with real stuff and you can't tell who's who's real and who's not, same as a normal Sybil. And they reported the accounts and said hey, this account is malicious. You know,

they they put something bad like having your account uh reported on Twitter. And so GitHub banned all of the all of the accounts. Like everybody who submitted reports. So we couldn't see the reports, their their accounts their GitHub accounts were banned. Uh it was just a total total mess. Got it. Got it. And um I I just yeah, like honestly when you talked about the bounty hunter bit, I just had reflections to this book that I read about whatchamacallit, the um the Great Leap Forward in China when people were just trying to like call each other capitalist rotors or whatever it was before the other person. Anyway, yeah, so it sounds like you think this was hugely successful. I mean, you found

800,000 Sybils. And then how many did the bounty hunters find? So all together merged unique sets. So we found 800,000 the first pass with Nansen and Chaos. We actually think there was a little bit too much of a false positive right there roughly 100,000 people submitted appeals. Some of those were Sybil themselves. We think it's about 40,000. So we had about a 5% false positive rate. So we went back to Nansen and Chaos and said, "Hey, we want we want to like tighten this up and make sure there's there's no false positive address, as few as possible." So we brought that to about 500,000, 550,000.

And then and then through the bounty hunters and through everything and some of these overlap. Some of them found the same Sybil. It was about 1.1 to 1.3 million total Sybil found and that reclaimed more than more than 10 million, you know, it would have been way more if we had Y, but more than 10 million tokens from like the eligibility pool. So more than 1% of the total supply. So like like, you know, current market rate, tens of millions of dollars. Was it super successful? I don't know. It was it was way more work than I ever expected. Like if you asked me to do it again right now, I'd tell you there's zero chance. Like I you know, I took a literal full month off of like running labs and like doing all of that stuff. So just an unbelievable amount of work. I think what it produced

and we couldn't even get we got through like 90% of the bounty reports. We didn't even get through 100% of them. So that's with us even not getting through all of them. So just a just a tremendous amount of work. Like 1% of the supply is is a large chunk of what actually was distributed. So it's a meaningful amount back to people. It's a meaningful sort of effort in like cleaning up. But I don't know. Super successful super successful I think would have been like more conclusive. I guess I thought the end result of it would be able to be more conclusive. Even even in the best of reports, there's still people who are submitting false positives. And then you have to kind of accept like what what is the false positive rate that's acceptable. Are you going to go through and vet, you know, you you get 1.1

million people reported as Sybil and you have a bunch of individuals saying, "But I swear I'm a real person and and here is why and here's all of this proof." And then you have a cluster of a thousand people and one person looks pretty different. Like they might be a real person. Like do you take them out individually? You're you're going to deal with millions of appeals. Do you throw out the entire cluster? Like that whole process again is just messy. But I I for sure somebody can take this entire thing, turn it into a business and I promise you every person running a project going forward doing any kind of distribution will immediately pay for it. Like we if there was something that existed in the world like that, I would have paid for it in a heartbeat and would have loved to not have to actually

do the work myself, for sure. And also so I asked you how many Sybils you found, but how many Sybils self-reported? 130,000. Oh, that's right. Okay, yeah, you said that. All right. So in a moment we're going to talk a little bit more about the Sybils, but then also the donation issue. But first a quick word from the sponsors who make this show possible. Did you know you can buy and sell crypto with tax benefits in an individual retirement account or IRA? iTrustCapital makes this possible. But what does this mean? When you buy crypto outside an IRA like on an exchange, you face taxes on gains. But in a Roth IRA, gains would be tax-free. iTrustCapital also has the lowest fees in the industry and 24/7 accessibility. Start now and

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Get your Web3 ideas to market fast. Think big, build bigger with Polkadot. Join the community at polkadot.network/ecosystem/community. Back to my conversation with Brian. Looking back, like are there things that you would have done differently? Like like what do you feel could have been improved? Yeah, looking back on the Sybil piece, definitely coms did better early on. There was a bunch of confusion in the early coms where we should have made it very clear like we're looking for we're looking for clusters of 20 plus.

We're looking for industrial grade Sybil. Where in the beginning people thought, you know, everyone had spent this time farming. They're saying, "Hey, you're going after individual. You're turning all of these sort of people in the community against each other." And really there's a ton of backlash early on. Like very negative response. My Twitter feed was like an absolute nightmare. And then slowly over the next month, you would see everybody we sort of like won everybody back. And everybody at that point was like very pro LayerZero. It was very clear to them we were one putting in the effort and really cared about what we were doing. And two, that we were catching people who were like not them, right? It's not like the average person who has three accounts. It's like these these huge clusters of like tens or you know, tens of thousands or

individual thousands. And they they realized I think that they're at a very structural disadvantage in a system like that. Like they get some small distribution, but there's there's some guy who's getting, you know, 50,000 accounts and that's just like killing it for everybody. So I would definitely coms way better, way cleaner early on. Again, I don't know if I would do it again knowing the amount of work, but maybe you clean that up by giving bounty hunters more time. Like if we could have given them a month lead up time rather than like a week and say, "Hey, you have a month to to make reports and you have to stake like one ETH instead of 0.5 ETH." Like you're you're going to get a higher degree. And even if you wanted to say like you'll only stake and you'll

only get it back if it's like an accepted report. There's a bunch of things you can do. It puts friction on reporters. You're not going to get as wide of a spread of methodologies, but it will definitely lessen impact and probably accomplish like 80% of the same. So I think I would have tried to produce it to like 50 submitted reports. And maybe it maybe just an app. Maybe it was an application process is what it could have been. Maybe it was like, "Hey, like ZachXBT and like all of these people are like, hey, I want to participate." And you're like, you know, show us your body of work that you've done before. Like yes, you you you, all of you can just submit and go from there. But I really loved the just democratization of it. Again, there were there were so many incredible reports

and it just like it renewed my love for humanity. If you if you go through it and spend all the time, people are just like amazing. People are really amazing. So that part was was incredible. Yeah. I mean, for sure. Like I feel like the crypto community often delivers when it comes to these kinds of things. But obviously, you know, as you mentioned, it's so much work. Instead of running an anti-Sybil campaign, had you considered just something else? Like I don't know if if there are any other options like either some kind of KYC. I know people don't love that, but that's been done in the past.

Even maybe like a proof of humanity or I don't know what any other options could have been, but Yep. No, I I mean, I think all are all have tradeoffs. All are really, you know, totally valid options. I think KYC Gitcoin has has a process that that people really like. A bunch of proof of humanity protocols coming up. We spoke a little bit with like Worldcoin, but they're like listen their orb isn't even like available everywhere. So there are solutions. There's nothing perfect yet. I think it's just a set of tradeoffs. We wanted to do it to the widest possible distribution. And so I think we'd still choose if we're choosing kind of what we believe in and driving ethos, we'd do it the exact way we did. If we're choosing

in the realm of like practicality and just getting like most of the benefit with the optimizing for work, then then some form of KYC. We could have done it through an exchange. As many of the exchange partners kind of could have helped offer to help and have in the past. Could have done it through one of the proof of humanity. So maybe that is just the way that these things are going to happen in the future. And from, you know, the like knowledge that you have now, what would you say about these industrial airdrop farmers? Like who are they? You know, how are they congregating? Do you feel like now you just made them smarter and so they're going to be more effective in the future? Like like what's yeah, give us your intel. It's it is an impossible game. I think anyone

who spent a bunch of time in security is always cat and mouse. We saw it in poker. So I came from a professional poker background kind of like a long time ago and there started to be a lot of bots in online poker. And and even even before there was just VPNs and people when online poker got banned in the states, people would VPN and then the sites would get wise and they would catch people VPNing. And then people would have like dedicated custom lines that run to a computer in Toronto. And then you know, all of these all of these crazy things kind of were happening. And so it's it's always going to be cat and mouse. I think there are like some low-hanging fruit that you can do to and again, even something simple like like a KYC or something would just bring up the burden

so massively. Programmatically, it's so easy to make 100,000 wallets and you fund it through sub-accounts on exchanges over time or through mixers through all of these things. And it's just like or other bridges of other protocols. It's such a low lift and you can do it all programmatically. Going out and getting like 100,000 people's identity and going through KYC and doing it is just like a much different task. It's much harder. But I think there's a bunch of things you can do to raise sort of the floor of what's required. I think the other thing is in a in a normal protocol and you see there's a bunch of people on Twitter.

Evan SS is kind of very famous for this. It is just like a linear distribution takes away like then you don't need to care about civil, right? If you are a D5 protocol and you're like the only thing we care about are perp decks or something like hyperliquid would be a great example or blur for for trading. You say we actually we don't care. We don't care who you are. We don't care anything. You trade volume, you get the incentive. It's just like if you have your pro rata share of volume at the end of the day is that. Everybody will get a proportion to the exact amount of fees they've paid or volume they've generated. That's it. We don't care. You can all be civil, you can not. And now no civil has any advantage. The reason that civil exists is every protocol wants to sort of I don't want

to say pandering, but they want to cater to these small real users. And so they create like points programs of you use three D5 protocols, you do this, you do five of this, you LP a little bit, you do this. And now a great example I guess was like Jito. I think Jito was something like if you staked a thousand sol versus if you staked one sol a thousand times, you would have got 2,000 times the reward if you just staked the one sol a thousand times, right? And it's just like a clear like the same action, the same benefit to the protocol, just a clear mismatch in the way they distribute by just anchoring a high thing to like this low action. So that that's where civil comes in. So if you move to a world of fully

linear, then then civil's eliminated. You don't need to think about it at all. In LayerZero's case, it's like extremely difficult because we're a messaging protocol. And so we're like agnostic to what's happening on top. It doesn't matter if you're sending an NFT or if you're sending a dollar or 100 million dollars. The protocol fee to LayerZero doesn't change. It's a packet on the internet. And um that is very difficult because in most linear fashion, and we did this semi semi linear. So we did it kind of based on protocol fees. But in most linear fashion, people are like, oh, I moved a hundred thousand dollars across the bridge. That's very different than the guy who moved, you know, one dollar a bunch of times. And to us it's not. It's the exact same thing. The protocol fee is the same. We we don't care. And that

made it tricky to try to say, okay, well, an an NFT that's built doesn't actually move that much. There may be benefit to having Pudgy Penguins or Kanpai Pandas or all these things like built on top of it and there's communities and all of this. But if you go from pure messaging volume stuff. So there's all this is to say very tricky, very protocol specific, a bunch of things you can do to again just make it like 80% easier. I think we probably went maximal difficulty on basically everything, which again would not do again, I don't think. Uh but we we did what we you know, we did what we believed in. We we just started every everything came to the conversation of what what do we actually think is like the right thing to do? Not what's most practical, not what's the best. Like if we were

designing for the optimal outcome, what is the right thing to do? And we just chose that at every fork. Yeah. Yeah, I mean it is harder when you're not like the first to airdrop because yeah, people are, you know, at this point when you come in, um people are trying to game it. So um you know, kudos to you for trying to sort out who your real users were. So now let's talk about what everybody's talking about today, the day of the airdrop, which is um this donation. Uh obviously people are reacting to the fact that they have to make this donation. So they're saying actually it's a tax.

What do you um say to these critics? And and just explain why you decided to enforce this donation. Yeah. Yeah, 100%. So just to be clear because there's some a bunch of confusion on Twitter. Uh people are like think this donation is going to us. The the donation is is to Protocol Guild. So Protocol Guild is like the Ethereum core developers. They're the people who build Ethereum the chain, the ones who managed the merge, the one who builds like everything that all of us do in the space. And so selecting this donation it was like, who is the best group in the world that is like nobody's going to be upset about them getting more money.

It's not good for everybody. And so that's that's where we landed. It's like Protocol Guild is the best choice. Protocol Guild is just an amazing organization, needs the support, benefits everybody. Why did we actually choose this? We think there's a very again, we we think the current airdrop model is just totally broken. And from our perspective we like we never ever once mentioned an airdrop, we never talked about it, we had zero plan to do it. And we're just like one year live, we're happy, growth is organic, like people are building, it's exciting, we're winning all this stuff. And all of a sudden all of these threads start coming out and people are speculating and volume goes massive and uh we have this expectation sort of placed on us externally um of like, hey, LayerZero is going to be

biggest airdrop ever, one of these one of these biggest things ever. And everyone has all of these expectations of what it's going to be. And we look at everything of all of the other distributions, all the recent you look at. Dimension was a was a huge distribution. All all of these were massive airdrops and a large majority of people just get it immediately dump it and move on in the next Discord group or whatever. And it's not that you care who sells or this, but it was just very clear that the people getting this like are are not the users who care. They're not uh aligned ethos-wise or any just like hyper mercenary cohort. And yes, you you have some tails of 20%, 10% of these people who are like really bought in and interested in the thing that you're

doing. But you just have this ball of money or activity that's just jumping around. And so there's just this disconnected relationship between give us give us these tokens and we release so many tokens we're giving and how we're doing it. It's like we give us more tokens. Like if you don't give us more, then the community is going to hate you. And there's there's so much entitlement. And and really that just comes from like mismatch of expectations. I'm sure we could have done a much better job commsing this stuff early and saying, hey, we, you know, whatever. I'm sure there's a million things we could have done better. But but there's all this expectation and at the end result, the protocol just doesn't doesn't get any sort of alignment. It doesn't get any of the people that it wants. And so for us it was like, okay,

it's it's too late. We can't we're going to you know, I can't imagine a world where we say, hey, everybody who farmed LayerZero, you guys all get nothing. We're going to distribute to these other people who we think are hyper aligned. So it was like we we have to have this distribution, this core set of users who built around. We went hyper dev focused and said like, listen, devs who built on us, you guys are like the lifeblood. Like users don't use LayerZero, you use Stargate or PancakeSwap or application built on top of LayerZero, which is infrastructure. And so we give a ton to the devs. We let the devs allocate themselves however they wanted.

We did the users, but the whole point of the donation was rather than just I give you something and the only thing on your mind is when when can I when can I get rid of this thing? What is what is the best time? Thank you for this time for me to move on. When you actually have to even if it's two seconds to put this donation and to think about what are you okay, what is Protocol Guild? I'm donating to Protocol Guild. There's like some amount of alignment form. You've you've gone through an extra action, some amount of friction, you've um you know, you paid to this donation.

And now you have like some at least association to the thing that you're getting. And I you know, I think that was that was the expectation. That was the ivory tower sort of rosy-eyed view of what was happening. Clearly what, you know, the majority of this has been like we thought we were getting this for thing for free, you're taxing us, we hate you, this you know, all of this stuff. And like that's fine. I think there's a lot of people that I would consider high signal who came out and have just said like this is actually very interesting. And clearly like clearly this meta needs a change. Maybe this is a thing that's useful. Maybe it is not. But like it's worth it to try something else. Protocol Guild is clearly an amazing organization. Like kudos to them for raising, you know, 10 million dollars

and we're going to match 10 million dollars to that. Um but you know, massive massive amount of backlash. But that was that was the intention. It's just if you're just everybody give me something, you give it to them and then they just move on with their lives. There there is no like relationship built there. And the goal was at the very least you've done something that we align with very heavily. You've given to this organization that the whole space benefits from. We share the same ethos and alignment of that. And hopefully that makes you more aligned or at least more thoughtful uh of what we're doing. We care about those things. We talk about them all the time. Most people don't read read it the Twitter stuff or or watch the videos that we make and like really understand the ethos. They understand a little bit.

Um but again, just that that little bit of extra alignment it cost the users almost nothing. I mean at the current price of uh of of where it's trading right now, you're talking you're paying, you know, one 40th or something of of what VCs paid prior. You're paying um you know, it's just like you're you're paying pennies on the dollar. 3% actually. Yeah, about 3% total of what you're getting. Okay. Right. Yeah, I mean I think but I think what crypto people are reacting to is that it's first of all, it's being called a donation, but that they don't have a choice. So I, you know, and then also the kind of libertarian ethos that crypto came out of like this is anti-tax.

very I'm very happy to argue the libertarian piece because one of like the key libertarian things is like no entitlement. Any libertarian would never be like, I'm in like you have to give me money. I'm entitled to this airdrop. That's the most anti-libertarian stance that you could have humanly possible. And so I think the disconnect is that the way we view it is you don't have to donate. Everybody here here is who's eligible. You you to claim it's a proof of donation and that enables you it's like a checkbox everything that enables you to claim. You don't have to claim, you have no need like we're just saying here like if we go and say every GitHub contributor to Eth core can can claim and people at Starknet did that a bunch of people have done that. You can come and claim this thing. We're just saying here are the

people who are eligible to claim. You have to donate to protocol guild. That thing is you what enables you to be able to claim and if you don't claim that's fine. We're going to take everything that didn't get claimed and redistribute it to the people who have. And so the question is are you like you're not forced to take your your allocation, right? Nobody's like you must take this distribution like you need these ZRO. It's an offer. It's like here's a thing you're eligible. If you want to do it, this is the criteria. And I think there's a very big disconnect between like you're forcing us to do this thing and you're eligible for this thing and here are the requirements. And it's the the same thing but like very different framings which I find very interesting.

Right, right. But but I mean don't don't you agree that the word donation that that word that's like a little bit of spin. Right? Or Well, I mean I've uh I want to hear the counterpoint to this cuz I I I don't actually I see how again I can maybe see the counter argument. Not going to us, not like you're eligible for a claim. Some people in past claims have said if you want to be eligible for this thing you have to do these actions. You have to join this Discord, you have to follow us on Twitter, you have to do a bunch of steps you have to do in order to have eligibility. There's a bunch of proof of these things. For us the proof is donate to a thing that we feel is aligned. Like

donate to protocol guild and the proof of that the Merkle root of like you have done this action, we're going to prove it. If you've done that action, you're eligible. So that shows you're like ethos aligned and that's it. It's proof of that unlocks this. And I think there's this disconnect that and again maybe maybe it's maybe it's valid but from our view it's do that thing, get this thing and for other people's view it's it's I guess I don't know. I I I don't know how to explain the difference. I I I would love to get just some full full criticism, feel free. Yeah. No no no, I mean you've seen it.

You've seen it. People are saying it's a tax because it's required. So I I mean I could see it either way. Yeah. It's a required donation. It's um Um so one other thing I have to ask about is the fact that of course because of the anti or I why did I shouldn't say because but after announcing the anti-Sybil program activity on layer zero dropped substantially. It was at 31,000 on Wednesday of this week and before the announcement it was at about 350,000. I know you did explain some of that but I just wondered how you feel just looking I mean it's you know when you see it on a chart it is like just just a drop straight down. So how do you feel about seeing the activity drop like that?

Yeah, I mean we talked about it so much internally in that like there's just there's so many things you can't control and when the when we went from like a million messages took us a year to almost a million a day it was just like listen like we can't control this and when it goes away someday like we're not going to be able to control that either. Our job is to build something that is like useful enough has high enough utility that we just backfill that. Like our goal is organic volume where all of that comes. People ask a lot like oh man you you dropped into today I feel well today is today is an outlier cuz the claim were like many hundreds of thousands today but the average for the past month is about 40 to 45,000 a day.

If you look at that, right? Two largest competitors in the space are Wormhole and Axelar probably. Both of them do 5,000 messages a day. So even right now post-Sybil post all of this drop off we're like 80% plus market share in the market. Like we're like it's a space we believe so deeply in we're like very comfortable. So people are like oh my god you dropped off from 300,000 to 40,000 we're like our market share basically went from like 97% to 80% in growing. I'm like we're okay with that. Like we understand there's a bunch of inorganic usage. We didn't really know what it was. You know you know it's clearly it's there and until we announce that snapshot we had no idea. Is this 40%? Is it 70%? Is

it 90%? Like who knows? Now we've seen. It's 300 350,000 down to about 40,000. That's the drop off. We can totally live with that. Like very content with where it is. I think our goal is just like again build the best stuff, build usage like fake usage just doesn't matter. Doesn't mean anything. If you if you build something and and people use it for like fake incentives that run out this is every everybody who's ever tried to fork Uniswap and then run out of emissions and like didn't know what to do anymore, right? Like you can only give away fake things for so long. You have to build something that's like underlying inherently useful and like Uniswap doesn't give away any of the tokens that have done like a trillion and a half

dollars of of volume, right? You build something genuinely useful and people use it. Anything else just doesn't matter. It's just noise. So if we can't build something that's useful enough I would never be spending my life doing this. So very content and very convinced that now and I actually much prefer the the post-snapshot world where you have our like actually know what our metrics are and know who our users are. I'm very convinced we will organically grow that into like millions of messages a day. I think we're pretty pretty clear path ahead of ourselves to do that.

Good. That's a good attitude. You said on Twitter that there will be three more airdrops. Can you expand and explain a little bit what you plan to reward in the future? Yep. Yeah, 100%. So basically there's this large community pool set aside and you see people use them in different ways. So one thing is we were very very specific with this distribution that like everything had to be retroactive. So we had all of these protocols who were committed to building on us. We're like really amazing some really amazing groups huge huge protocols.

And they all came and they said well how much are we getting? We're like yeah like actually like you're not deployed yet like you're not getting anything. Sorry, right? Like even if you're going to do the most amazing thing moving forward this was purely two and a half years of developers and users building. This was for that activity. The remaining portion is going to be a couple of things. One is forward-looking like Arbitrum step. It's like hey we're this awesome protocol. We want effectively a grant to do this thing. We want to bootstrap incentives. We want to get people to use this thing and it's just like early incentives to bootstrap sort of protocol or network and enable developers on top. And so forward-looking incentives great that's normal. Arbitrum does this. Optimism does that on a retroactive basis. All of

these things pretty established. And then we're going to do every 12 months we will do another initial another distribution sort of similar to this. Learned a ton from this one so I think we'll have a lot of feedback and mechanism design. I think the big thing we will be is just way more clear now cuz now we we've announced it. We expect to do it. There's no like hey you you can't talk about this thing. Are we doing are we not doing it? There's there's none of that. Like we can just be super clear and super transparent. And I think it's just on us to figure out is this like do we kind of go the RFP path? Is this is this protocol focused? Do we give it to the devs? The devs give it to the users and that builds a great ecosystem or do we keep

it sort of like this where it's a split or more user-focused? And then we just say up front like hey this is going to be on protocol fees. You know you don't need to think about it. There's no there's no weird metrics. There's no point system. There's anything. So I think our goal is every 12 months there'll be one more sort of set of this. We'll be super clear about what the size is and what the criteria is and all like so everybody can just know. They know exactly what they're doing. There's no ambiguity there. But yeah I I I think it's really the goal is just like bootstrap bootstrap the activity, support the developers, make sure devs building on layer zero have the incentives they need. Again like like Arbitrum. I think Arbitrum is a shining example of this. Uh

They they have their initial airdrop great. Network volume on the network drops like tremendously but they spend the STIP basically incentivizing these protocols and out of that come GMX, come Camelot, come all these like really amazing protocols who through their grant they incentivize liquidity, bring users there and then now that you know they don't need any extra incentives or just like their own protocols who have like hit escape velocity effectively on running for real like building a real thing. I think the the goal is is really that. Like get get the early builders to be able to build these awesome cross-chain or omnichain applications that don't exist now and get people using them and then they just like don't need it anymore.

That's that's the ideal outcome. All right. Well, last question. I do feel like we're kind of at this inflection point with airdrops. I mean we've seen so much chatter about this on Twitter and you know you guys kind of really called it out and obviously this whole anti-Sybil campaign was a reaction to you know what was happening. And I'm sure you've probably heard from other people who want to do airdrops and are curious about you know your learnings or you know whatever but I just was curious from your vantage point having been through this whole thing.

What do you think is the future of airdrops in crypto? I think so I mean I think the current system is entirely broken like entirely broken and I think there is no world that's a trajectory that it's on right now can continue to exist. Again if we go from Uniswap I was there for the Uniswap airdrop it was amazing but like I didn't think you know you weren't using Uniswap cuz you thought you were getting something. You used it and all of a sudden one day they were like hey check your wallet go see if you qualify." And I'm like, I I Uniswap to it. Like, this is awesome.

Uniswap seems pretty awesome. I like the protocol, great. And then go back to the well and be like, "I'm going to keep using it." Like, how much are are you going to give me in the future? It's just a thing that happened, and they they built a really special bond with a huge amount of people. And if that cohort there, I'm just going to make up a number, but you know, if that's like the 10,000 people who like really use DeFi, who became very like Uniswap aligned, now you have you know, we had 6 million people, and it's just growing. There's other protocols right now that have even more than that who are like farming them. And finding those 10,000 becomes very, very difficult. And even if you can, you're likely going to give them I they have this relative bias.

When we all got the Uniswap airdrop, it was like, "This is awesome." And now you're like, "Hey, I'm like actually a real person who uses this thing at scale, and I got less than like this guy running 25 accounts just moving a dollar doing something stupid, you know?" Um, this is like such a difficult problem and proposition. So, I don't know. Chris Burniske was tweeting about this this week. Kobe has been tweeting about this a ton. There's a lot of conversation around like the goal is the best distribution for the protocol. How we back into that, I don't know, but I know that this is not it. I know that this is not the thing that solves what you want to solve as a protocol. And there are ways you can try to make it better, uh but you're never going to get that Uniswap style

distribution in this current system. You just It will never happen. There's too much of abuse. There's too much like gaming of the system. So, I don't know what the the next iteration looks like. I think one of the I mean, you've been around you know, just as long as I have. The the space finds very, very creative ways uh to create incentive structures. And like, I don't know that what what that will look like. I'm certain it will be different than this. Uh but I'm interested. I mean, we're we're very much paying attention um because it matters. We care how that you know, we care how our network is distributed, and uh we we want to make sure we get that part right.

All right, Brian. And yeah, this has been a very conversation. Thank you so much for coming on Unchained. Thank you uh as always for having me and uh for being a wonderful host. Don't forget, next up is the weekly news recap, today presented by Wondercraft AI. Stick around for this week in crypto after this short break. Did you know Unchained is much more than a podcast? Last year, we unveiled a completely redesigned website, enriching your experience with the latest news, insightful analysis, compelling up-eds, and comprehensive learning articles and guides for beginners. Explore all this and more at unchainedcrypto.com.

Did you know you can buy and sell crypto with tax benefits in an individual retirement account or IRA? iTrustCapital makes this possible. But what does this mean? When you buy crypto outside an IRA, like on an exchange, you face taxes on gains. But in a Roth IRA, gains would be tax-free. iTrustCapital also has the lowest fees in the industry and 24/7 accessibility. Start now and maximize your retirement savings with iTrustCapital. Welcome to this week's crypto roundup.

In today's recap, we dive into Martin Shkreli's confession about the Trump-linked DJT token, the CFTC's investigation into Jump Crypto, the SEC concluding its Ethereum 2.0 probe, and Kraken's extortion accusations against CertiK. We also cover Nasdaq's new combined BTC ETH ETF filing, the launch of time.fund, Ethena's controversial tokenomics update, and the performance of the ZK Sync airdrop. Finally, we look at the SEC's pushback against Ripple's efforts to reduce its $2 billion fine.

Thanks for tuning in to the weekly news recap. Let's begin. Martin Shkreli admits to creating controversial Trump-linked DJT token. You'll not want to miss the most entertaining story of the week. Martin Shkreli, the former pharmaceutical executive who was convicted of securities fraud for misleading investors, confessed to co-creating the Trump-themed DJT meme coin, sparking controversy in the crypto community. Initially denying involvement, Shkreli admitted to creating the token with Barron Trump, who is Donald Trump's son, during a widely attended X Spaces on Tuesday, following an intense investigation by blockchain sleuth ZachXBT and crypto trader Gigantic Rebirth, or GCR.

The drama began when the DJT token, which was rumored to be officially endorsed by the Trump family, started to gain significant attention. Shkreli initially denied any association with the token, despite evidence proving otherwise. This led to a $100 million bet by GCR, challenging the token's authenticity. GCR, a known Trump supporter, wagered that the DJT token was not officially endorsed by Donald Trump or his family. Unchained sleuth ZachXBT solved the case, submitting evidence to Arkham Intelligence, who had offered a $150,000 bounty to whoever identified the token's creator. Shkreli then confessed, providing ZachXBT with over 1,000 pieces of evidence that he had created the

token with Barron Trump. CFTC investigates Jump Crypto amid regulatory scrutiny. On Thursday, Fortune reported that the Commodity Futures Trading Commission is investigating Jump Crypto, a division of the Chicago-based trading firm Jump. The probe focuses on the firm's trading and investing activities in the crypto sector, according to an insider. This investigation follows a series of setbacks for Jump Crypto, known for its algorithmic trading and market making in the crypto industry.

Jump Crypto gained prominence in 2021, led by Kanav Kariya, a former intern turned president of Jump's crypto division. The firm was a key market maker and investor in crypto projects, including Wormhole and Pyth. However, Jump faced challenges, such as a $325 million hack of Wormhole and losses from the FTX collapse. The CFTC's inquiry adds to previous regulatory attention, including SEC and Justice Department cases involving Jump's crypto dealings.

SEC concludes Ethereum 2.0 investigation. In a significant development for the industry, Ethereum software firm ConsenSys announced that the US Securities and Exchange Commission concluded its investigation into Ethereum 2.0, which refers to when the Ethereum blockchain switched from proof-of-work to proof-of-stake consensus mechanism. The decision to close the investigation marks a substantial victory for Ethereum and its supporters. ConsenSys revealed that the SEC's enforcement division notified the company of the investigation's closure, describing the outcome as a major win for developers and industry participants. The decision to close the investigation follows ConsenSys's letter to the SEC on June 7th, which sought

clarification on ether's status in light of the approval of spot ether ETFs, where the funds are listed as commodity-based trust shares in the ETF issuance order. ConsenSys also filed a lawsuit against the SEC in April, challenging the agency's categorization of ether as a security. The lawsuit highlighted the company's struggle for regulatory clarity, arguing that ether should be treated as a commodity. Kraken accuses CertiK of extortion in $3 million bug exploit. Major crypto exchange Kraken has accused security firm CertiK of extortion after a bug exploit led to the withdrawal of nearly $3 million from the exchange's treasury.

Kraken's Chief Security Officer, Nick Percoco, revealed that a critical bug discovered on June 9th allowed users to artificially inflate their account balances without completing deposits. CertiK initially reported the bug and credited their account with $4. They allegedly informed two others, who then exploited the flaw further. Kraken requested the return of funds, but CertiK reportedly demanded Kraken disclose the potential impact of the bug before complying, which Percoco labeled as extortion on X. While Percoco did not initially name the security firm involved, it was revealed when CertiK defended its actions on X, stating it was given insufficient time

to return the funds and accusing Kraken of threatening its employees. CertiK maintained that its actions were part of an investigation into Kraken's security vulnerabilities. Nasdaq files combined BTC ETH ETF, while Ethereum ETF issuers respond to SEC. On Tuesday, Nasdaq filed for the first combined Bitcoin and Ethereum ETF, managed by Hashdex with allocations of around 70% to Bitcoin and 30% to Ethereum, which is based on the relative free float market capitalizations of Bitcoin and Ethereum.

Nate Geraci, president of The ETF Store, expects future ETFs to use similar allocation strategies, reflecting market conditions and manager preferences. These combined ETFs offer investors diversified exposure to the cryptocurrency market. Simultaneously, prospective Ethereum ETF issuers are addressing feedback from the SEC on their S-1 forms, according to The Block. Sources described the comments as light and reasonable, with issuers aiming to submit revised forms by Friday. Following the approval of their 19b-4 forms in May, issuers hope for the effective approval of their S-1 forms soon, potentially leading to product launches by July.

New social platform time.fund captivates crypto community. A new social platform, time.fund, is grabbing the attention of the crypto community. Launched on Base, a layer-2 blockchain network incubated by Coinbase, time.fund has already generated over $1 million in trading volume and attracted notable figures like meme coin trader Ansem and Mert Mumtaz, who is the co-founder of Solana developer platform Helios. time.fun allows users to tokenize their time. According to the founder, each token represents a minute of a user's time, enabling users to trade these tokens, book one-on-one sessions, and interact with creators.

Tokenizing the most valuable asset someone can own, which is their time, is the platform's core vision, they explained. Ethena updates tokenomics, mandates locking of airdropped ENA tokens. Ethena, the synthetic dollar protocol on Ethereum, has introduced controversial changes to its governance token ENA's tokenomics. Recipients of ENA airdrops are now required to lock up 50% of their tokens within Ethena, Pendle Finance, or generalized re-staking pools. Ethena Labs explained that these changes aim to better align the use of its USD stablecoin with the ENA token.

Despite the potential yields from new staking options, the forced lockup has sparked backlash. Pseudonymous user Dark Crypto Lord on X criticized the protocol, asking, "What's the point of a governance token?" While DeFi educator John Galt added that forcing holders discredits the reliability of all future ENA airdrops. Ethena responded, stating the goal is to shift ENA holders from mercenary capital to long-term aligned users, and assured that forfeited tokens would solely benefit ecosystem-aligned users, not the team or investors. zkSync airdrop trades below expectations as users sell off. zkSync's highly anticipated airdrop went live on Monday, with users claiming over 2.62 billion ZK tokens worth approximately $630 million

in the first 10 hours. Despite the initial excitement, the token traded below expectations, opening at around 30 cents and dropping 30% to approximately 21 cents. About 40% of the top 10,000 addresses sold their entire airdrop allocation, according to Nansen. Many crypto projects that have recently conducted airdrops have fallen victim to mercenary airdrop farming, leaving industry leaders questioning what is next for airdrops. In related news, EigenLayer initiated the second phase of its Eigen token airdrop on Wednesday, expanding the total distribution to nearly 113 million Eigen tokens, which is 6.75% of its total supply.

This phase targets users who interacted with DeFi and liquid re-staking token protocols before March 15th. SEC opposes Ripple's effort to reduce $2 billion fine. The SEC has pushed back against Ripple's attempts to lower a proposed $2 billion fine for selling XRP to institutional investors. The SEC argued that Ripple's comparison to a recent Terraform Labs settlement is flawed, since Terraform is bankrupt and in the process of winding down operations, while Ripple is not agreeing to any similar relief. Ripple, in its June 13th filing, argued that its fine should not exceed $10 million, citing differences in fraud allegations and penalty calculations.

The SEC countered that the circumstances and financial metrics of the two cases are not directly comparable. And that's all. Thanks so much for joining us today. If you enjoyed this recap, go to unchainedcrypto.substack.com, that is unchainedcrypto.substack.com, and sign up for our free newsletter, so that you can stay up to date with the latest in crypto. Unchained is produced by Laura Shin, with help from Matt Pilchard, Wana Ranovic, Megan Gavish, Pam Majumdar, and Margaret Correa.

The weekly recap was written by Wana Ranovic and edited by Carey McMahon. Thanks for listening. [Music] Unchained is now a part of the CoinDesk Podcast Network. For the latest in digital assets, check out Markets Daily, 5 days a week, with host Noelle Acheson. Follow the CoinDesk Podcast Network for some of the best shows in crypto.