- Trading volumes and investor deposits on zero-knowledge blockchains have soared over the past week.
- But some attribute the increased activity to users attempting to game potential token airdrops.
DeFi users are flocking to Ethereum-based blockchains that use “zero-knowledge proofs.” Their likely motive? The possibility of striking gold with lucrative airdrops worth thousands of dollars, all by being early adopters of these cutting-edge chains.
Data from DefiLlama shows that activity on these buzzy blockchains — zkSync Era, Starknet, and Polygon zkEVM —spiked considerably over the past week.
Zero-knowledge proofs are a cryptographic technique gaining popularity in the crypto industry. They allow blockchains to process information while maintaining privacy and security by not revealing the actual data.
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Over the past year, blockchain projects Optimism and Arbitrum — which do not use zero-knowledge proofs — both airdropped tokens to early and frequent users. As a result, speculation has soared regarding the potential for upcoming projects to follow suit and unleash a similar flurry of rewards for those who get in early.
Numbers go up
The prevailing speculation has led to a substantial increase in investor deposits and attracted a growing number of traders.
Decentralised exchanges on ZkSync Era, currently the biggest zero-knowledge blockchain with over $120 million deposited onto it, have registered an 88% increase in trading volume over the past week. Earlier this month, however, developers of one of the chain’s five decentralised exchanges “pulled the rug” on investors by stealing over $1.8 million worth of deposits.
Starknet, another zero-knowledge chain, was not far behind, with a 48% increase in trading volume on its decentralised exchanges. But the biggest growth happened on Polygon zkEVM, a relatively new chain, which launched on March 27. The trading volume on its decentralised exchanges is up 230% this week.
In addition to the increase in trading volume, more DeFi users are moving their assets over to these new chains.
The total value locked, a measure of the assets deposited in a blockchain network’s DeFi protocols, increased 16% on Starknet this week, while zkSync Era is up 13%. But as with exchange volumes, Polygon zkEVM is the standout winner with a 219% boost to its total value locked.
Many in the DeFi community have pointed out that the primary driver behind the heightened activity on zero-knowledge-based blockchains may be attributed to the practice known as “airdrop farming,” where users create multiple wallets and engage in small transactions to register activity, all in the anticipation of securing valuable token airdrops as a future reward.
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“Airdrop and token speculation is always something protocols and application development teams have to be aware of,” Anthony Rose, senior vice president of technology at Matter Labs, the company behind the zkSync Era blockchain, told DL News.
Recent hints have also helped reignite speculation. In a May 10 tweet, Polygon co-founder Sandeep Nailwal, winked at the possibility of a token airdrop for early users of Polygon zkEVM.
Ser I think its more an insight on impact of airdrop anticipation on adoption than anything related to zk.— Sandeep Nailwal | sandeep. polygon 💜 (@sandeepnailwal) May 10, 2023
I guess you overlooked another prominent zkL2 which has 250mn tvl cuz of the airdrop expectation.
Also good things take time. Remember Arbitrum one took 1 year+ to fully…
Since then Twitter has been a buzz with talk of farming the possible airdrop, which may help account for the network’s dramatic uptick in usage.
And it’s not just Polygon zkEVM that’s become a target for airdrop farmers. There are also dozens of recent Twitter threads dedicated to gaming potential token airdrops on zkSync and Starknet, too.
But Rose isn’t concerned about a potential influx of inorganic activity from airdrop farmers. “As much traffic as we see today, it isn’t even a rounding error on what we will see on the system if we are successful,” he said.
But some say DeFi’s conventional metrics may not do justice to reality.
Uri Kolodny, co-founder and CEO of Starkware, the company behind Starknet, said he was sceptical about metrics like exchange trading volume and total value locked, which can become artificially inflated due to airdrop farmers.
“I think that total value locked is, in a way, open to misinterpretation,” Kolodny told DL News in an interview. Instead, Kolodny said, he prefers metrics that highlight developer activity — such as Electric Capital’s Developer Report platform — as a better gauge of how well a blockchain is doing.
According to the Developer Report, as of April 1, Starknet had 6,784 monthly commits — developer-speak for changes and updates to code. In comparison, zkSync registered 2,533. Although Starknet has more monthly commits, zkSync has approximately 20% more commits overall.
But they all have increasingly more airdrop farmers.