zkSync TVL Takes a Hit Amidst Token Distribution Controversy

zkSync Token Launch Sparks Backlash Over Airdrop Controversy

zkSync announced its token launch date for ZK on June 17, 2024, marking a significant milestone in the blockchain world. 

With a total supply of 21 billion tokens, the distribution details unveiled a strategic breakdown: 17.5% (approximately 3.675 billion tokens) allocated to early users via a one-time airdrop, 16.1% reserved for the development team, 17.2% set aside for investors, and the remaining tokens assigned to ecosystem initiatives managed by the ZKSync Foundation and ZK Nation governance. 

The allocation methodology saw 89% of the 17.5% airdropped to significant network transactors and 11% to developers, researchers, and related participants.

However, the airdrop quickly faced a storm of backlash due to widespread Sybil attacks, where users manipulated interactions using multiple wallets to qualify for rewards. This manipulation led to nearly 90% of the addresses that interacted with zkSync being excluded from the reward distribution, igniting widespread dissatisfaction among the community. 

Despite the airdrop targeting 695,000 wallets, critics like "Caneleo" on X suggested a maximum allocation of 20,000 tokens to include more wallets. 

Another user, "Olimpio," highlighted that 155 wallets had surpassed the 100,000 token cap, with other users suggesting this might be because select addresses eligible for the contribution-based airdrop could receive additional allocations.

Security experts weighed in on the controversy. Mudit Gupta, Chief Information Security Officer at Polygon Labs, labeled the zkSync airdrop as the "most farmable and farmed airdrop ever" due to its lack of effective Sybil filtering. 

Nansen clarified it didn't conduct anti-Sybil checks or advise on ZK token allocations, but provided data on specific wallet segments, including whales and known scammers. Crypto researcher "Ignas" argued that zkSync intentionally avoistrict anti-Sybil measures, citing their press release that claimed such measures often exclude genuine users. 

Adam Cochran, a partner at Synthetix, criticized the airdrop for its poor planning from a Sybil perspective, noting that it made it easy for farmers and difficult for genuine users. 

Adding to this, "Artemis the Sybil Hunter" reported that Sybil accounts managed to bag over 2 million ZK tokens by depositing identical Ethereum amounts on the same day, resulting in 15,000 tokens airdropped to each wallet. Nearly all these accounts were flagged on the LayerZero Labs Sybil list. 

Further research suggested that the volume of tokens allocated to Sybil users could be over 12.7 million, underscoring the scale of the issue.

The announcement had a notable impact on zkSync's Total Value Locked (TVL), which saw a sharp decline from nearly $200 million to approximately $133 million post-announcement, eventually dipping further to around $128 million according to DeFiLlama data. 

The primary reason for this decline was users withdrawing their assets in protest against the perceived unfairness in the token distribution. One user on X captured the prevailing sentiment: "There are six reasons for not buying zkSync tokens. The secondary investors have officially declared war on VCs and project owners. If we don’t buy, we won’t lose."

Market predictions for the ZK token varied widely amidst the controversy. Some speculated that the token could hit $1 at launch, while the Whales Market pre-listing platform showed ZK trading at $0.34. 

Sentiment analysis by Kaito AI revealed a predominantly negative community sentiment driven by concerns over Sybil attacks, ineligibility issues, and reward disparities.

Despite the backlash, zkSync emphasized its commitment to transparency and community engagement. The team invited further feedback from the community to better align future decisions with user expectations, signaling a willingness to “adapt and address the concerns” raised by the airdrop controversy.