Points, airdrops and farming

Wonder

1. What specific on-chain behavior distinguishes a genuine user from a capital renter?
2. How do projects filter out thousands of identical wallets without excluding legitimate power users?
3. Why does high activity during a ‘points’ season often precede a sharp drop in usage after the token launch?

Explore

1. Projects began rewarding early users with ‘points,’ a non-transferable metric convertible into future tokens. This structure transformed organic usage into speculative farming. Users created multiple wallets to maximize point accumulation, a practice known as Sybil farming (lesson 7.3.4). Simultaneously, capital was rented from high-net-worth individuals or funds at interest rates exceeding traditional yields, inflating activity metrics that did not reflect genuine demand for the protocol’s utility.
2. Uniswap’s UNI airdrop in September 2020 distributed 400 UNI to approximately 251,534 addresses. It set the precedent: distribution to past users aligns governance power with actual participants rather than early investors. Subsequent projects adopted this model but added complexity. By 2023 and 2024, ‘points programs’ became standard for layer-2s and decentralized exchanges. The metric tracked volume or liquidity provision, creating a direct incentive to maximize on-chain transactions regardless of economic utility.
3. Sybil filters emerged as the primary defense mechanism. Projects analyzed wallet creation timestamps, funding sources, and transaction patterns to identify clusters controlled by single entities. Some employed heuristics to cap allocations per ‘user,’ while others used machine learning to detect behavioral homogeneity. These filters are imperfect; sophisticated farmers use diverse funding paths and randomized transaction sizes to evade detection, leading to ongoing arms races between protocol teams and farming syndicates.
4. Jito, maker of a Solana validator client and the JitoSOL liquid-staking token, airdropped JTO in December 2023 to users who had earned points, mostly by holding JitoSOL. As with many airdrops, many recipients sold soon after. This ‘sell-on-unlock’ behavior depresses price and signals that the token served as an exit liquidity vehicle for early speculators rather than a long-term governance tool. The disconnect between the metric (usage) and the outcome (immediate sale) is inherent to points-based distribution.
5. Activity driven by expected airdrops looks like adoption but leaves when rewards end. When the points season concludes, the economic incentive to maintain liquidity or generate volume disappears. Users who rented capital withdraw their funds; Sybil wallets are abandoned. The protocol’s metrics crash, revealing that the ‘adoption’ was transactional rather than structural. This volatility is a trade-off: projects gain initial traction and data, but they inherit a user base with no loyalty beyond the next distribution.
6. To evaluate a points program, examine the correlation between activity volume and wallet uniqueness. A high ratio of transactions to unique addresses suggests Sybil farming. Check the source of funds for top contributors; wallets funded by a single exchange or cluster indicate rented capital. After launch, monitor the sell pressure relative to the total circulating supply. If the initial unlock triggers massive outflows, the token functions primarily as an exit mechanism for farmers rather than a sustainable economic asset.

Key facts

Exercise nine, six, three, one

Fact check

Dates, figures and claims checked against the published sources listed below.

• Uniswap Foundation, UNI Token Airdrop Announcement (September 2020)
• Jito Labs, JTO Token Distribution and Vesting Schedule (December 2023)
• Project airdrop eligibility and Sybil-filter announcements (2023–2024)
• Chainalysis, The Crypto Crime Report (2024)