Airdrop Trilemma

One of the unique aspects of crypto culture is the concept of airdrops. The airdrop space has a large user base and significant energy behind it, yet the most optimal method for token distribution has not been established. In this article, I will explain the "Airdrop Trilemma" that applications in the crypto space face.

Every time an airdrop occurs, it sparks excitement among crypto users, as well as heated debates. Service providers often find themselves at risk of criticism.

Here’s a diagram to help explain the trilemma. The three key factors are Identity, Equality, and Capital. These represent the criteria used to determine token allocations in airdrops. For example, if the allocation is proportional to the amount of capital deposited, like in the case of EigenLayer, this would fall under the Capital point at the bottom right of the diagram. On the other hand, if tokens are distributed equally to all participants, it would be positioned under Equality at the bottom left. Another approach might allocate tokens based on how unique the user is (often distinguishing between humans and bots). This would fall under Identity.

Allocating based on capital prevents Sybil attacks, meaning there’s no incentive to run multiple bots. However, this capitalist approach is often seen as unfair, as it tends to benefit the already wealthy.

• Advantages: Sybil-resistant token distribution.

• Disadvantages: It’s criticized for perpetuating a system where the rich get richer.

The opposite of Capital-based distribution is allocating the same amount of tokens to all participants, which reflects a socialist approach. However, this method is vulnerable to Sybil attacks.

• Advantages: It ensures fair distribution and promotes decentralization.

• Disadvantages: It’s susceptible to Sybil attacks.

Introducing identity as a way to address Sybil resistance is another approach. This often involves distinguishing humans from bots through some form of identity verification. In this case, users who can prove their humanity (via physical ID, for instance) would receive an allocation, while others would not. However, this method can contradict the trustless and anonymous principles of crypto, and there’s also the issue of the lack of optimal KYC (Know Your Customer) applications.

• Advantages: Fair and Sybil-resistant token distribution.

• Disadvantages: It contradicts the core principles of crypto, and no ideal KYC application exists.

I believe that identity shouldn’t be seen as a binary measure—whether you’re human or not—but rather as a continuous value. In other words, it should reflect how unique and non-replaceable an entity is, determined by its on-chain activities or outputs. For instance, factors like the number of likes on a Farcaster post, minting or issuing NFTs, or the variety of DeFi platforms used could all contribute to a numerical value representing identity.

This raises a broader question: Should we grant identity to a person who swaps $100 worth of tokens on Uniswap once a day? Or should we, instead, grant identity to an autonomous AI that creates unique memes and engages in various on-chain activities? We need to rethink whether it’s reasonable to distinguish between humans and machines when it comes to transactions.

Each of these allocation methods has its own advantages and disadvantages, and it seems that the optimal airdrop method lies somewhere in the delicate balance of these factors. Additionally, the method chosen must align with the design of the application.

By updating the Trilemma with these pros and cons, it looks like this:

• Capital-based allocation: Sybil-resistant and crypto-aligned but unfair.

• Equality-based allocation: Fair and crypto-aligned but vulnerable to Sybil attacks.

• Identity-based allocation: Fair and Sybil-resistant but lacks alignment with crypto principles.