Unchained - LayerZero Fought the Sybils and Airdropped Its Token. Did the Team Win? - Ep. 664

Episode Date: June 21, 2024

LayerZero’s token claims went live on Thursday, and as with every recent airdrop, there was plenty of controversy. In this episode, Bryan Pellegrino, cofounder and CEO of LayerZero Labs, joined to discuss their ambitious anti-Sybil campaign and the subsequent token distribution. He delved into the challenges of ensuring genuine user participation, the decision to offer a self-report option for Sybil attackers, and the complexities imposed by industrial-grade farmers. Bryan shared what he would have done differently and why a mandatory donation to Protocol Guild was imposed. Also, are airdrops dead? How can the industry improve this not-so-effective distribution method?  Show highlights: 00:00 Intro 01:23 Why LayerZero launched an anti-Sybil campaign with its airdrop, and what challenges they faced in ensuring genuine user participation 04:51 Why LayerZero offered a self-report option for Sybil attackers, and how this strategy revealed both the complexities and the creativity within the crypto community 10:16 How the anti-Sybil campaign uncovered over a million fraudulent accounts 14:34 What Bryan would have done differently in their campaign 17:18 What alternative methods, such as KYC and proof-of-humanity protocols, LayerZero could have used for their anti-Sybil campaign 18:35How LayerZero navigated the cat-and-mouse game with industrial airdrop farmers 23:08 Why they decided to impose a donation to Protocol Guild to claim the ZRO token 32:07 What caused the dramatic drop in LayerZero's activity post-announcement of their anti-Sybil campaign, and why the team is optimistic despite the decline 35:23 LayerZero's plans for future airdrops  38:40 What Bryan thinks the future holds for airdrops in crypto, and how the current broken system can be improved to achieve better distribution and user engagement 42:43 Crypto News Recap Visit our website for breaking news, analysis, op-eds, articles to learn about crypto, and much more: unchainedcrypto.com Thank you to our sponsors! iTrustCapital Polkadot Guest Bryan Pellegrino, cofounder and CEO of LayerZero Labs Learn more about your ad choices. Visit megaphone.fm/adchoices

And yes, you have some tails of 20%, 10% of these people who are like really bought in and interest in the thing that you're doing. But you just have this ball of money or activity that's jumping around. And so there's just this disconnected relationship between give us, give us these tokens. And we release how many tokens we're giving and how we're doing us. Like, give us more tokens. Like, if you don't give us more, then the community is going to hate you. And 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 nine years ago, and as a senior editor at Forbes was the first major meter reporter to cover cryptocurrency full-time. This is the June 21st, 2024 episode of Unchained. With I-Trust Capital, you can buy and sell crypto in a tax-advantage retirement account. Enjoy significant tax advantages, 24-7 access, and the industry's lowest fees. PocaDod is the original and leading layer zero blockchain with over 2,000 plus developers, and the PocaDot 2.0 upgrade will be a massive accelerator for the ecosystem. Join the community at Pogo dot network slash ecosystem slash community. The scorebed app here with trusted stats in real-time sports news. Yeah, hey, who should I take in the Boston game? Well, statistically speaking. Nah, no more statistically speaking. I want hot takes. I want knee-jerk reactions.

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Conditions apply. Today's guest is Brian Pelagrino, co-founder and CEO of Layer Zero Labs. Welcome, Brian. Hello, Laura. Thank you so much for having me back again. Congratulations on what has definitely been at the very least an interesting air drop. And it's up to, I guess, the individual to decide whether or not it's successful, which we will dive into. but let's start with kind of the main aspect of this that everybody's been talking about,

which is that Layer Zero decided to do an anti-Cibble campaign. So why did you decide to do that? What kinds of problems were you trying to solve with airdrops? Yeah, I mean, I think the biggest thing is, obviously when you do like your initial distribution, it's pretty important. How are you going to take a bunch of people who have, like, let's say the protocol is a resource, This token that wants to distribute in 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.

It 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 interest or say or vote or stake or whatever it is in the overall network. And so you're really trying to like back into that end setup. Right. The end setup is like have a great distribution of people who are like extremely, aligned. And then the problem is, in our case at least, is there's this massive, massive meta of just like of air drop farming. This for us is, you know, we launched back in 2022.

And I remember when we hit our first, 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, there became all of the, you know, air drops 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. And that was like, you know, we never said anything. We never mentioned anything. It was just like people started to place. We raised this really large round. We raised around at a billion and they're around at three billion. And people started saying, oh, 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, you know,

we bet 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 there's just like a total mess. And a lot of those are just, they're just bots. They're just these accounts who are civil farmers. They're single, single entities or are controlling. You know, we found clusters of like 50,000 plus accounts 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. They get the super majority of rewards. They dump the rewards. and then the people who you were supposed to be rewarding end up getting nothing. So we decided to take sort of this pretty contrarian stance that this is a bad thing in the industry overall in that we want to have real users, you want to have durable users, you back into that. And then it became a question of like, how do you actually solve for that?

And you tell me how much you want to dive into that. But that in itself has been a whole other journey. And I think I've learned more about civil and detecting civil than I ever thought that I would. 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, like, how did you come up with all that? Yeah. So again, when it came to how are we going to detect all the civil? Like the whole point of the civil has tried to seem, shuman. It's supposed to be very hard. There's people who are waking up in the middle of the night and have all of these accounts on different time zones and they're doing, you know, they're

using all of these sophisticated tools. And so there were a couple of things that I thought were very interesting. One, we know that there are these very large clusters and people share software. So they sell software, they share software, they share sort of farming strategies because it's not too adversarial between each other because 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 civil.

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, we'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 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, hey, I'm getting paid not that much. And if I report my entire boss's studio or cluster, 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 dataset to basically detect all of the other civil, right? So the whole point of that was to bait out subsets of these sibyl. that then you can use as like basically a data set, a training set 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, Nancy 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 miss, if you can prove it conclusively, you, the bounty hunter, will get 10%. And that was messy, very messy, but very intense. interesting. So the Sibble sort of struck back. We opened up GitHub. GitHub had been used very frequently before. Hopp used it to do it, Connects used it to do it, so you know, had been used as this civil reporting platform before. And the Sibble basically just completely nuked to GitHub. So we had 9,000 people produced reports. They were producing fake reports. And at the same time, they were reporting the GitHub's of every person who was putting up a valid report. So the 9,000 that got

submitted to GitHub, I think almost all of them had their GitHub accounts banned. We had to, you know, everything then got delayed for multiple days. We got escalated to like the very top of the food chain at GitHub and they're just like, we can't really do that much for you. And so we had to, you know, reopen the entire process with almost a week of wasted time in Commonwealth and get everyone to upload there and to avoid the problem of of Sibyl basically producing fake data for you to go through. we said, you know, 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 Eith. If you made a best effort, good faith report, even if it's not valid, if we find it's not conclusive, you'll get your 0.5Eath. And so even doing that, 469 reports were submitted. So 469 people bonded Eith.

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're, you have things that look like, that look like World War II sort of like sonograms that you're listening for. We had people doing these crazy clusters, all these visualizations. And it was like a really, really difficult task to go through them all. But it was so interesting.

And people are just amazing. Like some of the sluice and some of the analysts who participated in 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 civil, if you don't catch the symbol, this existing in the world, this data set for everybody able to go through and look and have is just like a massive public good. I'm so happy for that. Wait, and so I'm sorry, I didn't follow the GitHub thing. So what happened was that some of the civils were fighting back and trying to produce fake data for the bounty hunters so they wouldn't get caught. Is that what that was? So they, so let's say you have a thousand

honest bounty hunters who are submitting, we're going to have to go through their reports. The Sibble produced 8,000 reports and submitted them to GitHub. So now you have fake stuff mixed in with real stuff, and you can't tell who's real and who's not, same as normal Sibyl. And they reported the accounts and said, hey, this account is malicious.

They put something bad, like having your account reported on Twitter. And so get out banned all of the accounts. Like everybody who submitted reports, and we couldn't see the reports. their accounts, their GitHub accounts were banned. It was just a total, total mess. Got it, got it.

And I just, yeah, like honestly, when you talked about the bounty hunter bit, I just had reflections to this book that I read about, what should I call it, 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 Sibbles. And then how many did the bounty hunters find? So all together, merged unique set. 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 rate there. Roughly 100,000 people submitted appeals. Some of those were civil themselves. We think it's about 40,000. So we had about a 5% false positive rate. We went back to Nansen in Chaos and said, hey, we want to, like, tighten this up and make sure there's no false positives, or as few as possible. So we brought that to about 500,000, 550,000. And then through the bounty hunters and through everything, and some of these overlap, some of them found the same civil. It was about 1.1 to 1.3 million total civil found. And that reclaimed more than, more than 10 million, you know, it would have been way more if we had why, but more than 10 million tokens from like the eligibility pools, more than 1% of the total supply. like, you know, current market rate, tens of millions of dollars.

Was it super successful? I don't know. It was way more work than I ever expected. Like, if you asked me to do it again right now, I 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 tremendous amount of work. Like 1% of the supply 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 in the best of reports, there's still people who are submitting false positives and then you have to kind of accept, like, what is the false positive rate that's acceptable? Are you going to go through in vet? You know, 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 here's why, and here's all of this proof, and now 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 going to deal with millions of appeals. Do you throw out the entire cluster? Like, that whole process, again, is just messy. but 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 civils you found, but how many civil self-reported? A hundred and thirty thousand. 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 civils, 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? I trust capital 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. I-Trust Capital also has the lowest fees in the industry and 20, 24-7 accessibility. Start now and maximize your retirement savings with I-Trust capital. Pocodot is the original and largest layer zero blockchain with over 2,000-plus developers. The anticipated Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem. Upgrading the infrastructure with 8 times higher transaction throughput and twice as fast block times,

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Like, what do you feel could have been improved? Yeah, looking back on the civil piece, definitely comms did better early on. There was a bunch of confusion in the early comms where we should have made it very clear. Like we're looking for clusters of 20 plus. We're looking for industrial grade civil. We're 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.

Everybody at that point was like very pro-lator zero. 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 huge clusters of like tens or, you know, tens of thousands or individual thousands. And 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 some guy who's getting, you know, 50,000 accounts.

And that's just like killing it for everybody. So I would definitely calm, 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 make reports. and you have to stake like one-eth instead of 0.5-Eath. Like 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,

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 was in absent. application process is what it could have been. Maybe it was like, hey, like Zach XBT 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-civil campaign, had you considered just something else? Like, I don't know 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. 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 people really like. A bunch of proof of humanity protocols coming up. We spoke a little bit with like WorldCoyne, but they're like, listen, not, you know, their

orb is 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 were choosing in the realm of like practicality and just getting like most of the benefit when they're optimizing for work, then some form of K.C. We could have done it through in exchange, as many of the exchange partners kind of could have helped, offered 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. future. And from, you know, the, like, knowledge that you have now, what would you say about these industrial air drop 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 and online poker. And even before there was just VPNs. 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 all of these crazy things kind of were happening. And so 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,

And even something simple 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. I think there's a bunch of things you can do to raise, is sort of the floor of what's required. I think the other thing is in a normal protocol, and you see there's a bunch of people on Twitter, Evan S, is kind of very famous for this. It's just like a linear distribution takes away.

Like, then you don't need to care about civil, right? If you are a defy protocol and you're like, the only thing we care about are a perp decks or something like hyper liquid would be a great example or blur for trading. We actually, we don't care. We don't care who you are. We don't care anything. You trade volume.

You get the intent. It's just like if you have your pro-rata share of volume at the end of the day is that. And everybody will get the proportion to the exact amount of fees they've paid or volume they've generated. And that's it. We don't care. You can all be civil. You can not. And now no Sybil has any advantage.

The reason that Sybil exists is every protocol wants to sort of, I don't want to say pander, but they want to cater to these small real users. And so they create like points programs of you use three DFI protocols. You do this. You do five of this. LP a little bit, you do this. And now, a great example, I guess, was like Gito. I think Gito was something like if you staked a thousand saw versus if you staked one saw a thousand times, you would have got two thousand times the reward if you just staked the one saw a thousand times, right? And this is

like a clear, like the same action, the same benefits of the protocol, just a clear mismatch and the way they distribute by just anchoring a high thing to like this low action. So that's where Sibyl comes in. So if you move to a world of fully linear, then civil's eliminated. You don't need to think about it at all. In Layer Zero'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, the protocol fee to Layer Zero doesn't change.

It's a packet on the internet. And that is very difficult because in most linear fashion, and we did this semi-linear. So we did it kind of based on protocol fees. but in most linear fashion, people are like, oh, I moved $100,000 across the bridge. That's very different than the guy who moved, you know, $1 a bunch of times. To us, it's not. It's the exact same thing. The protocol fee is the same.

We don't care. And that made it fricky to try to say, okay, well, an NFT that's built doesn't actually move that much. There may be benefit to having pudgy penguins or Kempai 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 is not. So there's all of this is say very tricky, very, very prudenty, very powerful. 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. But we did what we, you know, we did what we believed in. We just started everything in the conversation of what do we actually think is like the right thing to do. All what's the most practical. That's the best. Like if we're 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. you're not like the first air drop because yeah people are you know at this point when you come in 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 air drop which is um this donation 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 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, people are like, think this donation is going to us. The donation is to Protocol Guild. So Protocol Guild is like the Ethereum core developers or the people who build Ethereum, the chain, the ones who manage 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 is like nobody's going to be upset about them getting more money. It's not good for everybody. And so that's where we land. It's like Protocol Guild is the best trade. Protocol Guild is just

amazing organization, needs and support, benefits everybody. Why did we actually choose this? We think there's a very again. We think the current AirDrop model is just totally broken. 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 we have this expectation sort of placed on us externally of like, hey, layer zero is going to be the biggest air drop ever. 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 huge distribution. All of these were massive air drops. And the 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 not the users who care. They're not aligned ethos-wise or any. It's just like hyper-mercenary cohort. And yes, you have some tails of 20%, 10% of these people who are like, really bought in and interest in the thing that you're doing, but you just have this ball of money or activity that's jumping around. And so there's just this disconnected relationship between give us, give us these tokens and we release how many tokens we're giving and how we're doing us.

Like, give us more tokens. Like, if you don't give us more, then the community is going to hate you. And there's so much entitlement. And really that just comes from like mismatch of expectations. I'm sure we could have done a much better job, comsing this stuff early and saying, hey, we, you know, whatever. I'm sure there's a million things we could have done better. But there's all this expectation.

And at the end result, the protocol just 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 too late. We can't, we're going to, you know, I can't imagine a world where we say, hey, everybody who farmed layer zero, you guys all get nothing. We're going to distribute to these other people that we think are hyperaligned. So it was like, 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 to,

on us. You guys are like the lifeblood. Users don't use Layer Zero. You use Stargate or Pancake Swap or an application built on top of layer zero. We're just infrastructure. 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 can I when can I get rid of this thing? 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 your Protocol Guild. There's like

some amount of alignment form. You've gone through an extra action, some amount of friction. You've, 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 think that was the expectation. That was the ivory tower, a 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 thing for free. You're taxing us. We hate you. You know, all of this stuff. I'm 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 but you know a massive massive amount of backlash but that was that was the intention is 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 of what we're doing.

We care about those things. We talk about them all the time. Most people don't read the Twitter stuff or watch the videos that we make and really understand the ethos, understand a little bit. But again, just that little bit of extra alignment. It cost the users almost nothing. I mean, at the current price of where it's trading right now, you're talking, you're paying one 45th or something of what VC's pay.

prior, you're paying, you know, it's just like, you're paying pennies ultimately. I think it's like about 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 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 antithetical. So I'm very, I'm very, I'm very, very happy to argue the libertarian piece because one of the key libertarian things is like no entitlement. Any libertarian would never be like, I'm into like, you have to give me money. I'm entitled to this air drop. 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 need to claim. It's a proof of donation. It enables you. It's like a checkbox of a thing. That enables you to claim. You don't have to claim. You have to claim. You have need, like we're just saying here, like if we go and say every GitHub contributor to Heathcore can claim and people at Starknet did that, a bunch of people have done that. You can come and claim this thing. Here are the people who are eligible to claim. You have to donate to Protocol Guild.

That thing is 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 redistributed to the people who have. And so the question is, are you like, you're not forced to take your allocation, right? Nobody's like, you must take this district. like you need these zero. 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 same thing, but like very different framings, which I find very interesting. Right, right. But, but I mean, 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 want to hear the counterpoint to this, because 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, there's 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 Merkel route of like, you have done this action, we're going to prove it. If you've done that action, you're eligible. That shows your, 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 it's valid. But from our view, it's do that thing, get this thing. And for other people's view, it's, I guess, I don't know. I don't know how to explain the difference. I would love to hear just 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 mean, I could see it either way. Yeah. It's a required donation is. So one other thing I have to ask about is the fact that, of course, because of the

answer, or I don't know, I shouldn't say because. But after announcing the anti-civil 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 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 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, as 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 dropped into today. Well, today is an outlier because of claim we're at like many hundreds of thousands today. but the average for the past month has been about 40 to 45,000 a day. If you look at that, right, two largest competitors in the space are wormhole and Axel are probably. Both of them do 5,000 messages a day. So even right now, post-Civil, post all of this drop off, we're like 80% plus market chair in the market. Like, we're like, it's a space we believe so deeply and we're like very comfortable. So people are like, oh my God, you dropped off from 300,000 to 40,000.

And we're like, our market share basically went from like 97% to 80% and 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 announced 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 look 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. It doesn't mean anything. If you build something and people use it for 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. I've done like a trillion and a half dollars 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 post snapshot world where we have our like actually know what our metrics are, know where users are, I'm very convinced we will organically grow that into

millions of messages a day. I think we're pretty clear path to add of ourselves to do that. Good. That's a good attitude. You said on Twitter that there will be three more air drops. 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 are committed to building on us. We're like, I'm really amazing, some really amazing groups, huge, huge protocols. And they all came and they said, well, how much are we getting? And we're 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. So forward-looking incentives, great. That's normal. Arbitrum does this. Optimism does on a retroactive basis. All of these things. Pretty established. And then we're going to do

every 12 months, we will do another distribution, 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 because now we've announced it. We expect to do it.

There's no like, hey, you can't talk about this thing. Are we doing it? There's none of that. 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 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 all front, like, hey, this is going to be on protocol fees. You know, you don't need to think about it. 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. everybody can just know. They know exactly what they're doing. There's no ambiguity there. But yeah, I think 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 Arbitram is a shining example of this.

They have their initial air drop. Great network volume on the network drops like tremendously, but they spend the step 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. They're just like their own protocols of like escape velocity effectively on running for real, like building a real thing.

I think the goal is really that. Like get the early builders to be able to build these awesome, cross-chain or omni-chain applications that don't exist now and get people using them and then they just like don't need it anymore. That's ideal outcome. All right. Well, last question. I do feel like we're kind of at this inflection point with air drops. 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-sybill 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 air drops 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 air drops 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 the trajectory that it's on right now can continue to exist. Again, if we go from Unisrop, I was there for the Uniswop AirDrop. It was amazing. But like, I didn't think, you know, you weren't using Uniswap because we 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. I'm like, I got Uniswap to it. Like, this is awesome. Uniswap seems pretty awesome. I like the protocol. And I didn't go back to the well and be like, I'm going to keep using it. How much are you going to give me in the future? It's just a thing that happened. And 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, that's like the 10,000 people who like really used D5 who became very like uniswap aligned. Now you have, you know, we had six 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, they have this relative bias. When we all get the uniswop air droppers, 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 in proposition so I don't know Chris Berniske 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 you can try to make it better, but you're never going to get that uniswop-style distribution in this current system. It will never happen. There's too much abuse. There's too much like gaming of the system. So I don't know what the next duration looks like. I think one of the,

I mean, you've been around, you know, just as long as I have, the space finds very, very creative ways to create incentive structures. And like, I don't know what that will look like.

I'm certain it will be different than this. But I'm interested. I mean, we're very much paying attention because it matters. We care how our network is distributed, and we want to make sure we get that part right. All right, Brian. Yeah, this has been a very fascinating conversation. Thank you so much for coming on Unchained. Thank you, as always, for having me and 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.

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Franks Red Hot is a registered trademark of the French's food company LLC. Welcome to this week's Crypto Roundup. In today's recap, we dive into Martin Scrailey's confession about the Trump-linked DJT token, the CFTC's investigation in. to jump crypto, the SEC concluding its Ethereum 2.0 probe, and Cracken's extortion accusations against Serticay. We also cover NASDAQ's new combined BTC, ETHETF filing, the launch of Time. Fun, 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 Schrailey admits to creating controversial Trump-linked DJT token. You'll not want to miss the most entertaining story of the week. Martin Schreli, 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, Schraili admitted to creating the token with Baron Trump, who is Donald Trump's son during a widely attended X-Bases on Tuesday, following an intense investigation by blockchain sleuth Zach XBT 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. Shraley 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, wager, that the DJT token was not officially endorsed by Donald Trump or his family. On-chain sleuth, Zach XBT solved the case, submitting evidence to Arkham Intelligence who had offered a $150,000 bounty to whoever identified the token's creator. Shraley then confessed, providing Zach's XBT with over 1,000 pieces of evidence that he had created the token with Baron Trump.

CFTC investigates jump crypto amid regulatory scrutiny. On Thursday, Fortune reports, 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 Korea, 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 Pith. 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 Jumps crypto dealings. SEC concludes Ethereum 2.0 investigation. In a significant development for the industry, Ethereum's software firm Consensus announced that the U.S. 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-state consensus mechanism. The decision to close the investigation marks a substantial victory for Ethereum and its supporters. Consencies 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' letter to the SEC on June 7, 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. Cracka accuses Serti K of extortion in $3 million bug exploit.

Major crypto exchange Cracken has accused security firm SertiK of extortion after a bug exploit led to the withdrawal of nearly $3 million from the exchange's treasury. Cracken'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. Sertia K initially reported the bug and credited their account with $4. They allegedly informed two others, who then exploited the flaw further. Cracken requested the return of funds, but Serticae reportedly demanded Cracken disclosed 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 Serticay defended its actions on X, stating it was given insufficient time to return the funds and accusing Cracken of threatening its employees. SertiK maintained that its actions were part of an investigation into Cracken'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 hashtags 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 Garazzi, 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 S1 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 19B4 forms in May, issuers hope for the effective approval of their S1 forms soon, potentially leading to product launches by July. New social platform time.comptivates crypto community.

A new social platform, Time.com, time.Fun, is grabbing the attention of the crypto community. Launched on base, a layer two blockchain network incubated by Coinbase, Time.com. Fun has already generated over $1 million in trading volume and attracted notable figures like Meme Coin Trader Ansem and MertMumtaz, who is the co-founder of Salana developer platform Helius. Time.combe 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. Athena updates tokenomics mandates locking off air dropped ina tokens. Athena, the synthetic dollar protocol on Ethereum, has introduced controversial changes to its governance token, INA's tokenomics. Recipients of INA air drops are now required to lock up 50% of their tokens within Athena, Pendle Finance, or generalized restaking pools, Athena Labs explained that these changes aim to better align the use of its USD stable coin with the INA token.

Despite the potential yields from new staking options, the forced lockup has sparked backlash. Sudonymous user Dark CryptoLord 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 INAe AirDrops. Aetina 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. ZK-Sink airdrop trades below expectations as users sell off.

EZK Sync'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 air drop allocation, according to Nansen. Many crypto projects that have recently conducted air drops 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 IgenToken token airspace, drop on Wednesday, expanding the total distribution to nearly 113 million Agen tokens, which is

6.75% of its total supply. This phase targets users who interacted with defy and liquid restaking 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 lab 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 unchained crypto.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, Juan Aronovich, Megan Gavis, Pam Majumdhar, and Margaret Korea. The weekly recap was written by Juan Aronovich and edited by Kari McMahon. Thanks for listening. Unchained is now a part of the Coin Desk Podcast Network. For the latest in digital assets, check out markets daily five days a week with host Noel Atchison. Follow the CoinDesk podcast

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