May 16, 2024 - Economy

Earning "free money" in crypto has gotten convoluted

Illustration of a parachute attached to a pixelated coin.

Illustration: Shoshana Gordon/Axios

Free money is out there in crypto, but it's increasingly more complicated to get your hands on.

Why it matters: Decentralization isn't just a buzzword. The strongest crypto projects really are the ones where the most people own some of the digital asset.

The big picture: One way to get lots of tokens in lots of people's hands: Give them away. This approach is usually called an airdrop.

  • But this presents a problem for those looking to make a long-term bet on a project (such as the founders). They want those free tokens to go to people who will hold them, at least for a little while.
  • This helps support the token's price, which reflects on the strength of the project. And to plausibly say a project has decentralized power, it needs a significant portion of the many people holding its token to be participating in governance.

Friction point: There are always cynical traders who look for ways to game the system, get as many tokens as possible and then cash out ASAP.

The latest: Points have been the newest solution to sorting out token giveaways (it started with Blur, the NFT market for pros).

With points, teams don't make any firm commitment about how they will distribute an airdrop. Instead, they give users a sort of scoreboard for different activities to earn them (such as engaging with a social platform, supplying liquidity on a DeFi app or trading on a decentralized exchange).

  • The advantage of points, for project teams, is leeway.
  • When a manipulator fakes activity from what looks like multiple people, that's called a "Sybil attack." If teams realize that some activity that might have been yielding lots of points was full of phony users, they can lower the value of that kind of points in their calculations.

Reality check: Not everyone is enthused about the approach.

A screenshot of a tweet.
Uniswap founder Hayden Adams. Screenshot: @haydenzadams (social media)

EigenLayer distributed its EIGEN token, using a points system.

Flashback: Prior to points, teams had previously started putting conditions on airdrops, such as tweeting about a project or signing up for a newsletter.

  • Subsequently, 2020 brought liquidity mining, in which free tokens were distributed to users, pro rata, who committed some of their capital for use by a protocol (such as making yield-earning deposits to a lending protocol — like a savings and loan).
  • But liquidity mining proved easy for deep pocketed investors to game. Put loads of money in, suck up most of the free coins, sell them, and then exit that liquidity as soon as the shine came off the new token.

What's next: Blast, the blockchain from the same team that made the highly successful Blur NFT marketplace, just announced an airdrop for June 26.

In short, points have become a guessing game, one that requires a lot of work.

The bottom line: The free money is getting expensive.

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