The widely awaited airdrop of the native token of the LayerZero blockchain protocol ZRO has ignited some heated debate within the crypto community after the project opted to implement a “Proof-of-Donation” scheme for users who wanted to claim their tokens.

This approach requires that all users who are eligible to receive the airdrop donate a certain amount to the project’s developers via a fund called the Protocol Guild. The LayerZero team claims that it will match these donations for up to $10 million to compensate the people who have made LayerZero what it is today.

Although donations are common among crypto projects, making them a mandatory requirement to access an airdrop – which is supposed to be a reward for loyal token holders or platform users – is an unprecedented move.

The ZRO Token Airdrop: An Overview

On June 20, 2024, LayerZero, a cross-chain interoperability protocol, officially allowed users to start claiming its ZRO airdrop.

The airdrop consisted of 85 million ZRO tokens, representing 8.5% of the total ZRO fixed supply of 1 billion tokens. The token rapidly started changing hands at around $4.4, resulting in a circulating market cap of $1.1 billion and a fully diluted valuation of $4.3 billion, data from CoinGecko indicated.

These are some key details of the airdrop:

  • Eligibility: Approximately 1.28 million wallets out of over 6 million unique addresses that had interacted with the LayerZero protocol were deemed eligible for the airdrop.
  • Claim Period: The claiming period started on June 20 at 7 a.m. ET and will remain open until September 20, 2024.
  • Supported Chains: Claims can be made on multiple blockchain networks, including Ethereum, Arbitrum, Optimism, Base, Polygon, BNB Chain, and Avalanche.
  • Token Allocation: In addition to the 8.5% available for immediate claims, 15.3% of the total supply is reserved for future distributions to users, protocols, infrastructure builders, and community members.

The Controversial “Proof-of-Donation” Mechanism

At the heart of the controversy surrounding the ZRO token airdrop was the introduction of a “Proof-of-Donation” mechanism for claiming the tokens. Users were required to make a donation of $0.10 in USDC, USDT, or native ETH for each ZRO token they wished to claim.

LayerZero explained the rationale behind this decision in a blog post, stating that the donations would go directly to the Protocol Guild, a collective funding mechanism for Ethereum developers. The company estimated that this initiative could raise approximately $18.5 million to support the development of Ethereum.

“By donating to Protocol Guild, eligible recipients show long-term alignment with the LayerZero protocol and a commitment to the future of crypto,” LayerZero stated in an X post.

This requirement has sparked intense debate within the crypto community, with opinions being sharply divided on the merits and implications of this scheme.

A significant number of users within the social media platform X criticized the move, arguing that the mandatory donation effectively changes the nature of what is typically considered an airdrop. Some users have gone as far as to label it a “tax” or compare it to an initial coin offering (ICO).

Critics argue that this approach goes against the spirit of crypto airdrops, which are traditionally seen as free distributions of tokens to early adopters or users of a protocol. They contend that demanding an additional payment, even in the form of a project donation, alters the relationship between the project and its community.

On the other hand, other members of the crypto community see certain benefits in LayerZero’s approach. They argue that this mechanism could help address issues that have plagued recent token airdrops, such as airdrop farming and Sybil attacks.

A well-known crypto analyst named Adam Cochran highlighted that this donation can serve as a “good way to set a base cost value for a token” while it also effectively helps deter Sybil’s presence and activity.

These supporters also point out that the donations are being used to support the Ethereum ecosystem – an initiative that could have long-term benefits for the entire crypto community.

LayerZero Defends Mandatory Donation

Despite the criticism, LayerZero has stood firm on its decision, emphasizing that the ZRO token launch is not a traditional airdrop. Bryan Pellegrino, CEO of LayerZero Labs, has been among those who are actively defending the offering on social media platforms.

“There is no mandatory donation; if you don’t want to donate, just don’t claim. This is not something you own, but something offered,” Pellegrino stated.

LayerZero further commented that airdrops are no longer the best mechanism to achieve “equitable distribution, community building, and protocol health”, citing the issues that other similar offerings have experienced with airdrop farming and Sybil attacks.

These incidents end up rewarding the wrong users and affect the project’s credibility as loyal members of the community end up being negatively impacted instead of rewarded.

ZRO Price Takes a Hit Amid Donation Controversy

The controversy regarding the mandatory donation imposed by the developing team ended up affecting the performance of the ZRO token. Here’s a brief timeline of how the price behaved shortly after the digital asset hit the marketplace:

  • Within 20 minutes of launch, ZRO surged by 15.15% to $4.71.
  • In the following two hours, the price tumbled by 22%.
  • As of the latest data, ZRO was trading at $3.20, which implies a 22% drop in the past 24 hours.

This pattern of initial surges followed by immediate drops is not uncommon for token launches, initial coin offerings, or airdrops as some investors seek to cash out rapidly after they claim their tokens.

However, the decision to impose a donation to eligible users may have contributed to some of the volatility the ZRO experienced shortly after it hit the trading desks.

That said, and regardless of the controversy, the project’s market cap still stands at a decent level of nearly $800 million based on its circulating supply and $3.2 billion on a fully diluted basis. For now, only 250 million ZRO tokens have been floated.

Polymarket ZRO Wager is Temporarily Halted Amid Unclear Outcome

The decision to include a mandatory donation to access the airdrop has caused issues for prediction markets like Polymarket, as users were betting that the event would take place by June 30. With over $700,000 in total wagers on the line, there was some heated dispute as some users did not agree that the event should be labeled an airdrop.

Traders on Polymarket had assigned a 100% probability to LayerZero conducting an airdrop by the end of June. However, as news of the “Proof-of-Donation” mechanism spread, the odds plummeted to 54% just before a final outcome of “Yes” was proposed.

This proposed outcome was quickly disputed by Polymarket users, many of whom argue that LayerZero’s token distribution did not meet the traditional definition of an airdrop due to the required donation.

The dispute has raised relevant questions about how airdrops are defined in the context of prediction markets. Some of the users involved in the wagers argue that LayerZero’s assertion that this is “not an airdrop” should not be the final word on the matter.

Also read: ZKync Gears Up for Historic Airdrop Worth $2.5+ Billion

One user named Trophycase commented on Polymarket’s Discord server: “LayerZero isn’t the authority on what is and isn’t an airdrop.”

“Are criminals allowed to say something isn’t murder because ‘oh, it’s actually this other thing?” he asked.

Others pointed to definitions used in previous Polymarket wagers, which stipulated that “Token sales are not airdrops. Tokens need to be distributed to users’ wallets for free or through claiming with a gas fee for it to be an airdrop.”

Polymarket Involves UMA Oracle to Solve the Dispute

To resolve the dispute, Polymarket has turned to UMA, a decentralized oracle protocol. UMA’s token holders are tasked with voting on which outcome is true, a process described as a “decentralized truth machine.”

However, this resolution process has also been a source of controversy and has already sparked debates as well as some users have expressed their concerns about potential manipulation. Naturally, bettors on either side have a financial motive to swing the decision.

In response to the growing debate, Polymarket issued a “bulletin board rules update” suggesting that the wider context of LayerZero’s token distribution should be taken into consideration:

“The LayerZero token launch is considered to be an airdrop under the widely understood context of what an airdrop is, both by the public and the media,” the update reads. “While LayerZero added a donation element to the distribution and stated it wasn’t an ‘airdrop’ because of that, the spirit of the market hinged around whether LayerZero would launch and widely distribute their token to network participants by the resolution date, which they did.”

As a result, the “Airdrops by June 30?” ZRO wager has been settled with an outcome of “Yes” and a total of $729,960 in wagers received by the platform.