Two-day-old Blast draws $135m as investors seek yields and airdrops

Less than 48 hours after its announcement, the new blockchain project Blast has won over investors lured by the promise what it calls “native yield” on Ether and stablecoin deposits.

Blast, a so-called layer 2 blockchain designed to help Ethereum scale, now holds over $135 million worth of crypto assets consisting of Ether, Lido staked Ether, and MakerDAO’s stablecoin DAI. Holders can earn 4% on their Ether and 5% on stablecoins.

“Blast appears to be part of a growing trend [of] ever more niche layer 2s — not dissimilar to earlier Cambrian explosions like altcoins or initial coin offerings,” Paul Dylan-Ennis, lecturer at University College Dublin and author of the book Absolute Essentials of Ethereum, told DL News.

The blockchain itself is not yet operational or even in testing, yet investors have been quick to pour funds into the project’s so-called bridge contract on Ethereum.

The 4% Ether yield offered to Blast depositors is generated from liquid staking protocol Lido’s yield for staked Ether, while the 5% stablecoin yield comes from MakerDAO’s so-called DAI Savings Rate.

In addition to the appeal of native yields, the surge in deposits is also driven by Blast’s promise of an airdrop — the distribution of free tokens — to both investors and developers.

Airdrops are a common marketing strategy in crypto that capitalises on the allure of “free” assets that could later be worth a lot of money.

Blast has secured $20 million in funding from several venture capital firms and more than a dozen angel investors.

And the involvement of prominent crypto investment firm Paradigm — also involved in an airdrop-driven NFT marketplace, Blur — has only fueled the hype. Blur creator Tieshun Roquerre, who goes by Pacman, is also at the helm of Blast.

Unknowns loom large

Despite the hype, uncertainties and unanswered questions remain about the design of the new blockchain.

“What Blast is doing here is to sell a moonshot project that compromises on the security as well as on the economic incentives,” Pascal Caversaccio, an independent security researcher, told DL News, adding that his criticism is based on publicly available information.

“It’s irresponsible to FOMO people into another layer 2 chain via seemingly risk-free yield, while ignoring so many unknown unknowns,” Caversaccio said.

The unknowns in Blast include how its promised profit-sharing features — native yield and gas revenue share — might impact the incentives of sequencers who are tasked with validating transactions.

“[The] implementation of native yield — [for] stETH and sDai — is the somewhat interesting part to not let your funds sit idle,” crypto investor Julian Richter said on X. But, he added, you also “bridge to a random layer that has nothing to do with a real, technically implemented layer — which would inherit security from the layer 1 — and you lockup your funds to participate in an imaginary points system for a potential future airdrop.”

“Enjoy the yield, aka become the yield of your favourite influencer VC who gets a cut of your yield, and make a buck on the dumber retail investors once he buys your airdrop.”

But, Richter told DL News, it’s “probably not fair to just pick on” Blast when its “design and go-to-market is more or less an industry practice, but worth pointing out the bad as well as the good in this industry.”

A layer 2 directly aimed at ‘degens’

The rush to deposit funds to the yet-to-be-launched blockchain Blast also highlights the growing excitement surrounding layer 2 blockchains — infrastructure solutions built on top of existing blockchain networks to enhance scalability and speed.

The layer 2 sector, buzzing with over 50 active and developing projects, offers a promising avenue for addressing the limitations of layer 1 blockchains like Ethereum.

“The combination of yield and earning points signals this is directed squarely at degens and those with less risk profile should remain cautious,” Dylan-Ennis told DL News.

Degens, short for degenerates, are DeFi-native users and investors who dabble in high-risk crypto ventures, often involving unaudited contracts, where they take significant risks in pursuit of high rewards — including, of course, the holy grail of new projects, airdrops.

Investors will need to wait until Blast’s mainnet launch in February to use the chain and withdraw funds, with the current deposit address for fund transfers being a multisig wallet controlled by five people — an arrangement that crypto lawyer Gabriel Shapiro called “beyond crazy” legally, likening it to “simply investing in a crypto hedge fund.”

Blast plans to distribute tokens through an airdrop to its community members and developers. The allocation of the tokens will be evenly split, with half designated for community members and the other half for developers. The criteria for the airdrop will be based on the number of points accumulated by each participant.

According to the project’s schedule, developers can expect to receive their tokens in conjunction with the launch of the testnet in January. Meanwhile, the community member airdrop is slated for May.