Dialogue with Dragonfly Partners: Controversy over Airdrops Triggered by Celebrity Memes and zk

Guests of the Dialogue:

• Haseeb Qureshi, Managing Partner at Dragonfly;
• Tom Schmidt, General Partner at Dragonfly;
• Robert Leshner, CEO and Co-founder of Superstate;
• Tarun Chitra, Managing Partner at Robot Ventures

Compiled & Organized by: Deep Tide TechFlow

Highlights of This Podcast

Crypto Market Sentiment: Discussion on the latest market trends and how inflation data affects the community.

Memecoins and Celebrities: Analysis of Iggy Azalea's $Mother and the phenomenon of celebrity-launched memecoins.

Emerging Memecoins: Insights into new memecoins, including issues of fake and hacked accounts.

Tap-to-Earn Games: Overview of the rapid growth of simple click-based games like Hamster Kombat.

Airdrop Controversies: Exploration of recent controversies, particularly involving ZK SYNC and Layer0, as well as the challenges of Sybil attacks.

Future Airdrop Strategies: Discussion on the evolution and demand for clear, non-playable metrics.

Current Market Sentiment

Robert mentioned that recent market sentiment can be inferred from price changes. He pointed out that encouraging inflation data was released today (Wednesday), and the market reacted optimistically, believing the Federal Reserve might lower interest rates this year, bringing the market back on track.

However, this optimism lasted only a few hours before a significant sell-off occurred, causing prices to retreat. Ultimately, market sentiment returned to a relatively calm and watchful state.

Celebrity Memecoins and Market Impact

$Mother

• Tarun pointed out that the biggest news on crypto Twitter today was Iggy Azalea promoting her memecoin.

• Haseeb quoted Iggy Azalea in an interview questioning Vitalik's views on charities and hospitals, implying that Vitalik profits from gas fees.

• Haseeb introduced the background of Iggy Azalea and her memecoin "Mother," noting that she is now more of an internet celebrity and has clashed with some well-known figures in the crypto community.

• A meme image of Iggy Azalea and Vitalik was shown, depicting Vitalik as a baby being breastfed by Iggy Azalea, suggesting she is his "mother."

Market Impact

• Tarun mentioned that the memecoin market has not been calm this week, with many celebrities starting to get involved in memecoins.

• Haseeb explained that Hulk Hogan's memecoin was a result of a hack and noted that hackers are now profiting by launching fake memecoins.

• He mentioned that Andrew Tate launched a memecoin called "Daddy," competing with Iggy Azalea's memecoin "Mother."

• Haseeb emphasized that celebrity involvement in the current memecoin market has reached a peak, but he believes there may be even higher peaks in the future.

• Haseeb discussed the future of celebrities monetizing through memecoins and other means, pointing out that celebrity tokens may, in some cases, be a positive-sum game.

• He noted the difference between celebrity tokens and traditional product endorsements, believing that celebrity tokens may create value initially, but this value will erode as the market saturates.

• Robert believes that monetizing through new businesses (like liquor brands, vitamin water, headphones, etc.) is the most valuable way for celebrities to earn, as these businesses are legitimate and create value.

• He thinks that while memecoins may create positive wealth during breakthrough successes, they are usually zero-sum games.

• Robert mentioned Doge's unique value proposition, being the first satirical crypto asset that attempts to mimic Bitcoin or Litecoin and other Bitcoin forks, giving it greater longevity in crypto history, while other celebrity tokens lack this uniqueness.

• Robert discussed the saturation issue in the memecoin market, believing that market demand is limited and will eventually reach a peak.

• Tom believes that every market trend will eventually saturate, and the current memecoin market is no exception.

• He mentioned the differences between celebrity tokens and traditional product endorsements, believing that memecoins may create value initially, but this value will erode as the market saturates.

• Tarun believes the core truth of memecoins is that they attempt to simplify revenue-sharing agreements but fail to address the issue.

• He discussed Pump.fun as the first successful token launchpad project, noting its ease of use and fun nature. Tom believes it is closer to a truly viral consumer application than many blockchain game projects.

• Robert stated that Pump.fun is the first project similar to a Launchpad and has performed well.

Click-to-Earn Games: Hamster Kombat vs Notcoin

• Haseeb mentioned two blockchain game projects worth discussing: Notcoin and Hamster Combat.

• Haseeb introduced Hamster Combat as a click-to-earn game based on Telegram, where players click on hamster images on the screen to receive feedback and points.

• Hamster Combat has over 100 million users, with daily active users exceeding those on Ethereum.

• Haseeb believes the success of blockchain games may be seen as a social issue, as these games can be addictive and waste time. Haseeb talked about the simplicity and viral nature of these games, believing they fulfill people's need for "digital growth."

• Robert believes the success of click-to-earn games lies in their simplicity and ease of access, appealing to those who want rewards for minimal effort.

• Robert mentioned the short-term appeal of these games, believing players will lose interest after a while.

• Robert continued discussing the economic cycle issues of these games, believing that once airdrops end, players may lose motivation to continue playing. He also pointed out that these games are designed very simply, requiring almost no technical innovation.

• Tarun mentioned that the popularity of click-to-earn games may be a reaction to complex games and the proliferation of AI. He believes the success of these simple games relates to their low computational demands and ease of use.

• Tom believes the popularity of click-to-earn games may be a response to high-end games, as people prefer simple games that require less investment.

• Tom mentioned the cyclical nature of culture, believing the current trend is a return to simplicity. He thinks the popularity of these games reflects people's need for "digital growth," possibly indicating some societal dissatisfaction.

Airdrop Controversies

Airdrop Meta (zkSync & LayerZero)

• Haseeb discussed recent airdrop trends, noting that many large airdrops have been accompanied by controversies and dramatic events. He mentioned the airdrops of ZKSync and LayerZero.

• ZKSync is a zero-knowledge rollup that announced it would airdrop 17.5% of its total supply to users. Despite the large scale of the airdrop, only about 11% of users were eligible, leading to much anger, especially from farming-type users.

• LayerZero's airdrop strategy allows users to self-report, and if self-reporting as a bot, they can receive 15% of the original airdrop. If someone successfully reports another, the reporter can receive 10% of the reported person's airdrop. This method has also sparked varied reactions.

• Haseeb noted that recent airdrops have received almost no consistent positive feedback, seeing it as a widespread issue.

• Tarun believes that the expectations for airdrops have been increasing over time, making it harder to satisfy everyone. He thinks the expectations for airdrops are set by the first projects to adopt novel mechanisms, and subsequent projects need to pay a higher "premium" to meet these expectations.

• Tom agrees with the view that airdrop expectations are continually rising, seeing it as a common issue.

Challenges of Fair Airdrops

• Haseeb mentioned that in the past six months, almost no major airdrop has satisfied everyone.

• Tom believes that fairness and transparency in airdrops are significant issues when facing a large number of users and potential bots. He noted that GMV's airdrop is one of the few recent examples that did not provoke a lot of negative reactions.

• Tarun mentioned that Celestia's airdrop is an exception, as they allocated airdrops to developers and researchers, a method that has been emulated by other projects.

• Tarun referred to a phenomenon in behavioral economics where once expectations are set, subsequent expectations tend to rise.

• He explained this phenomenon with specific examples, such as some people expecting similar large rewards in other projects because they received substantial rewards in Celestia's airdrop.

• Tarun believes this rising expectation is similar to rising salary expectations; once set, it is hard to lower them.

Airdrop Industrialization

• Haseeb mentioned the issue of airdrop industrialization, believing this may be one reason for the increase in airdrop controversies.

• Six months ago, the scale of airdrop industrialization was far less than today. Back then, while there were airdrop hunters, their numbers and tools were not as prevalent as now.

• He pointed out that many users in emerging markets can easily participate in airdrops through various guides and tools, making airdrop industrialization more common.

• Haseeb believes that for some projects, like decentralized exchanges (Dex) or those requiring liquidity, measuring user behavior is relatively straightforward, leading to fewer controversies.

• In contrast, for some ambiguous projects, like Layer 1 protocols or Celestia, users are unclear about what actions to take to qualify for airdrops, increasing uncertainty and controversy.

• Tarun agreed with Haseeb's viewpoint, mentioning that Celestia's airdrop was also exploited by industrialized farmers. He referenced some memes reflecting users' dissatisfaction with airdrops.

• Tom believes some airdrops require users to have more "skin in the game," such as providing capital or paying transaction fees, which leads to fewer controversies.

• He mentioned a meme in ZKSync's Discord reflecting strong dissatisfaction among Indian users.

• Tarun believes the entire ecosystem is somewhat out of control, with users manipulating metrics in various ways to obtain airdrop rewards.

• He thinks the current airdrop system is overly complex and vulnerable to attacks, making it an ineffective token distribution method.

• Tarun predicts that future airdrop trends may change entirely, as the current system is not ideal.

Future Airdrop Strategies

• Haseeb pointed out that the current airdrop mechanisms lack countermeasures, making it difficult to effectively distinguish between real users and fake accounts (Sybil attacks). As the technology of airdrop hunters improves, the effectiveness of anti-Sybil measures declines, increasing the chances of mistakenly targeting real users and raising the error rate.

• He believes that project teams have, to some extent, tacitly allowed the existence of airdrop hunters, as this helps improve project metrics.

• There exists a "Faustian bargain" between airdrop hunters and project teams, where project teams allow airdrop hunters to exist to boost short-term metrics, but in the long run, this leads to more user dissatisfaction.

• Haseeb noted that future trends may change. He believes project teams may become clearer earlier on, such as informing users in advance about what they will reward and choosing some metrics that are hard to manipulate, like liquidity. This could avoid dissatisfaction and manipulation issues arising from surprise factors. Another possibility is that the "cat-and-mouse game" between airdrop hunters and project teams will continue indefinitely, with both sides constantly trying to outsmart each other's Sybil attacks and anti-Sybil measures.

• Robert believes the success of Proof of Work in Bitcoin lies in its close connection to the project's core objectives. However, the current airdrop mechanisms resemble "fake work," providing no real value to the project and serving more for optical effects. Future airdrop mechanisms need to better link work with token distribution to enhance project success rates.

• Tarun discussed the differences between Proof of Work (PoW) and Proof of Stake (PoS), believing that PoS is inferior to PoW in some respects. Airdrop mechanisms need more randomness and sustainability to reduce expectation management issues. He also mentioned that fraud issues in other fields, such as gaming and Spotify, have not been fully resolved, and airdrops are no exception.

The Role of KYC in Airdrops

• Haseeb suggested that the future may move towards comprehensive KYC for obtaining airdrops, as some regions (like Luhansk, Crimea, the US, India, etc.) are already excluded. If these restrictions are already in place, then comprehensive KYC may be the next step.

• Tarun opposed this view, believing that KYC cannot scale and will lead to asset distribution being more concentrated among those who can pass KYC, rather than being widely distributed. He also pointed out that many airdrop hunters may not be able to pass KYC.

• Haseeb further explained that current anti-Sybil measures (to prevent one person from creating multiple fake accounts) are essentially a "shoddy version of KYC," attempting to verify whether users are real people through various signals.

• Tom believes that returning to linear airdrops (i.e., distribution based on some hard-to-manipulate metrics) may be a more practical solution.

• Haseeb mentioned that future zero-knowledge proof (ZK) technologies may allow for verification without disclosing user KYC information.

• Tarun believes this technology may be realized in the future, but it is not mature enough yet. Moreover, even with such technology, many people will still be excluded.

• Tarun is concerned that if KYC is adopted, governments may find it easier to classify it as securities, which would increase complexity and compliance costs.