The tension in the DeFi industry has been exposed by LayerZero’s anti-cyber strategy

LayerZero, a cross-chain interoperability protocol, is preparing for its first token airdrop, but the strategy against token farmers is creating a divide.

The main concern revolves around Laser Zero's “anti-Sybil strategy”.

Sybil activity occurs when a group or individual creates multiple wallets to interact with the protocol in an attempt to qualify multiple times for the airdrop.

This gaming of the system may make the protocol look more popular in the short term, but it will not add value in the long term.

LayerZero itself connects previously siled blockchains allowing cross-chain messaging and applications.

The main point of contention is LayerZero's negative nature of Merkly, a cross-chain bridge decentralized application (DApp) that LayerZero has dubbed a “Sybil farming app”.

This is because LayerZero Merkly is prominently featured on its website as part of the LayerZero “ecosystem” of applications.

Cointelegraph spoke to CC2, a climate farmer and consultant for Merkley, to understand more about the situation surrounding the controversy.

CC2 admits that the situation is frustrating for users, but certainly “I can understand from them. [LayerZero’s] Look, Merkly seems to have been spun to capitalize on the LayerZero airdrop hype, but then it got much bigger.

For example, CC2 described Merkley's gas station equipment as “a value-added feature that is still used frequently.” According to CC2, this is evidence that Merkly should not be “shamed” as Sybil Farm.

Despite being dubbed the unwanted “Sybil Farm”, CC2 went on to say that the use of Mercli shouldn't automatically disable airdrop hunters – only “excessive use” should.

CC2 also criticized the Sybil Hunt campaign involving LayerZero CEO Brian Pellegrino. For the past month, Pellegrino has posted about little else on the X, suggesting its importance in the process – but CC2 questions its importance.

“It wasn't necessary for other high-profile projects like Wormhole and Arbitrum, and probably not for zkSync. Why is LayerZero necessary?” CC2 asked, adding, “In my opinion, the approach you're taking is going to cost a lot of real low-income farmers 1-3 out of pocket because they're repeating what ‘Sybil' means.

VC firms are interested in airdrop strategies.

Although LayerZero's Sybil hunt alienated a few, it earned praise from others in the community.

Pellegrino emphasized that Sybil Hunt's climate is designed to ensure that tokens are sent to real users. As Pellegrino himself puts it at X, “users first”. LayerZero calls these people “power users” because it expects them to continue using the platform long after Airdop is complete.

LayerZero's Sybil hunt is likely to resonate positively across the wider industry and, most importantly, with those holding the wallet.

Cointelegraph spoke with George McDonough, founder and co-managing director of KR1, to learn how venture capital firms' protocols distribute tokens to their communities.

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“Yes, VCs are going to be interested in how a protocol gets airdropped based on the metrics the founding team decides to hire,” McDonaugh said. “They are very balanced processes and can be positive or negative events depending on the purpose of the airdrop and how well the competitive economy is organized.”

“In general, the best airdrops are those where the goal is less to generate participation and the goal is to distribute tokens to build a community,” he added, noting that these airdrops involve high value distribution.

“In this case, the interest in stopping Sybil attacks is strong, because orders can be issued to non-aggregate participants,” McDonaugh said. “As a VC, we're very interested in how a team handles Sybil's downsizing.”

Lifestyle checks

LayerZero's struggle to isolate Cybil farms without alienating significant segments of the community illustrates the tension between protocols and users.

One solution to these problems is to introduce lifestyle checks, said Titus Kapilnen, vice president of civic market-to-market at Digital ID Services. In this way, there is no doubt that each user is associated with a unique account.

Civic offers multiple forms of authentication, from CAPTCHA to ID scanning. Kapilnen told Cointelegraph that in the case of Sybil's removal, users will be required to submit a “simple video feed” to prove their uniqueness.

Civic then encrypts the face map and uses that to compare it to the existing “universe of face maps”.

As explained by Capilne, Civic seems like a workable solution, but this is crypto, where users are skeptical about any kind of identity checks and resist giving out any personal information or biometrics.

When Cointelegraph asked Capilnean about this, he said, “There are layers of authentication that don't create a lot of friction for the user — like no friction at all. I understand why I'm going there, but no conflict is always the best solution. Adding some friction saves time, effort, energy and time to clean up if things go wrong.

Kapilnen describes that friction point as “a muscle that people need to build” over time.

Capilne describes the current Sybil as something similar to the early days of the Internet, when advertisers bought ads without knowing whether the clicks or traffic were real.

You need a third-party service to provide that authentication. And in the ad world, it was the ad server that was the third party part of the transaction. And in this case, you need an identity protocol for identity, civic or otherwise,” Kapilnen said.

An unsolved problem in DeFi

If authentication protocols exist that can eliminate sybil farming, and if there are solutions, why aren't they standard practice?

Cointelegraph spoke with Debra Nitta, senior crypto strategist at public relations firm YAP Global, to better understand the risks that live inspections could introduce to the industry.

Protocols can be reluctant to address issues with airdrops using better authentication processes – including decentralized ones – including reputation. The implications vary from impact on community sentiment, key stakeholders and legal standing,” said Nita.

Nita continued, “Authentication creates a reputation problem, which can serve a large set of users from the start.

Nita mentioned EigenLayer's airdrop, which allowed users from the United States, Canada, China and Russia to participate, but declined. This has left a sour taste in the mouths of many who have wasted time and money on the platform without getting any reward for their efforts.

While this may seem to make matters clearer at the outset, the challenges are formidable.

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“While decentralized solutions are possible, most of the industry has not yet reached a fully decentralized state,” Nita said. “This means that special users who are critical to protocols – such as whales, early investors and strategic stakeholders who don't want to risk anonymity – will choose to participate without authentication.

In their love of anonymity, early stakeholders are like ordinary retail users and airdrop farmers. But unlike ordinary users, those early stakeholders don't risk being left out when the financial pie is cut.

This fact may be part of the reason for the increased hostility of low-value individuals when protocols name their wallets' Cybil addresses. For now, protocols and their executives continue to wrestle with the issue, sometimes facing significant community outrage in the process.

Cointelegraph reached out to LayerZero for this article but did not receive a response by the time of publication.