Ten Questions for LayerZero Co-Founder: How Are Wash Trades Handled and Token Incentives Calculated?
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Ten Questions for LayerZero Co-Founder: How Are Wash Trades Handled and Token Incentives Calculated?
Finally, a semi-linear allocation is made based on the agreed-upon protocol fees paid.
Navigating Web3 tides with focused insightsAuthor: Nan Zhi, Odaily Planet Daily
The witch hunt at LayerZero is still ongoing. According to LayerZero co-founder Bryan Pellegrino, the final list of sybil addresses is expected to be released by the end of June. Today, Bryan addressed the methodology for identifying and handling sybil attacks and low-value transactions on X (formerly Twitter). Below is a full QA compilation by Odaily Planet Daily.
Review Criteria and Final Objectives
Before answering user questions, Bryan Pellegrino first defined what constitutes spam (referred to here as low-value transactions), and how such transactions will be processed and weighted. His original statement is as follows:
Here’s how we’re currently thinking about eligibility from a broad perspective. The focus is clearly on real users, and on achieving the fairest, most widely distributed allocation with strong alignment and long-term persistence.
Much of this thinking is inspired by the outcomes of the sybil analysis process. Any definitive final definition will come directly from LayerZero, not from me.
We started with 6 million wallets, of which 3 million had fewer than 5 transactions—these are under serious consideration. All transactions below $1.00 are down-weighted by 80%, but still count as 1/5 of a normal transaction. The same applies to all "valueless NFTs."
Here, a valueless NFT is defined as one with a "market value" or "lifetime trading volume" less than 0.00001 ETH. For example, gas drop-type transactions are considered valid.
Then, transactions are normalized based on protocol fees (not the underlying blockchain's gas fees). The normalized data has both a floor and a cap. Finally, multipliers will be applied based on early usage.
In summary: eliminate sybils, eliminate spam, semi-linear rewards with a cap, reward early users, reward persistent users, and use RFP to reward non-standard protocol interactions like LPing.
(Odaily Note: RFP is a distribution protocol launched by LayerZero that allows each project to establish its own allocation criteria within the overall token distribution. Any project with an OApp, OFT, or ONFT contract on mainnet is eligible to apply for RFP.)
QA Compilation
Bryan Pellegrino answered several detailed questions. Key highlights are summarized below:
Liquidity Provider Incentives
Q: Liquidity pools are important and should be rewarded. If someone adds LP for over a week, there's a 99% chance it's not a sybil.
A: Incentives for liquidity providers will be handled via RFP.
Definition and Treatment of Valueless NFTs
Q: I created an NFT on Holograph last May for 0.003 ETH. If classified as a valueless NFT, it clearly has no price. But I love my NFT—I was one of the earliest users of L0 cross-chain NFTs.
A: These transactions were initiated to use our cross-chain system. If it's easy to distinguish this from millions of "valueless NFT" transactions, I’d be happy to do so.
I hope Holograph rewards creators through RFP. That’s why we created the RFP process.
(Odaily Note: This means such cases are still considered "low-value NFTs," not directly eligible for LayerZero airdrops, but potentially incentivized via RFP.)
Gas Drop Calculation
Q: Honestly, you’ve integrated over 50 chains, but 90% of Refuel fees are under $1. Each tx gets an 80% reduction in value—you’re penalizing many users.
A: I think this is completely valid criticism, and part of why I’m speaking publicly. The original post discussed Stargate and OFT transfers—we reviewed sybil clusters with countless txs ranging from $0.001 to $0.25. I don’t know much about Gas Drop data yet, but we must evaluate it.
(Note: Gas Drop refers to Gas refuel, typically low-cost top-ups of gas fees to other accounts. This section implies Gas Refuel actions will be included in incentives but discounted in calculation.)
Discount Calculation Method
Q: If I have around 130 LayerZero transactions, including about 10 valueless NFT transactions, does the entire address get an 80% discount, or only those 10 transactions?
A: Only those 10 transactions, not the entire address.
Definition of Valueless NFT
A: Market value or lifetime traded value at the time of snapshot.
How to Handle Valueless NFT Transfers with High Protocol Fees?
Q: If I pay fees on a valueless NFT transfer, is it discounted?
For example, I transferred 5 valueless NFTs and paid $50 in protocol fees—does that count as $10?
A: Valueless NFTs count as 20% of a normal transaction, so $1 in fees would be worth $0.20 in the overall model.
What Does Down-Weighting Mean?
Q: What does "down-weight by 80%" mean?
A: A normal $1 transaction counts as 1. If you send $0.01 back and forth across chains, each transaction counts as 0.01 × 20%.
How Are LayerZero Contract Deployers Incentivized?
A: Nearly 60,000 contracts have been deployed—that’s exactly why RFP exists and why there’s a dev allocation in the RFP process.
(Odaily Note: This means incentives must be claimed via RFP application.)
Meaning of Protocol Fees
Q: If you bridge STG via Stargate, there’s no protocol fee?
A: No Stargate protocol fee, but there *is* a LayerZero protocol fee (for DVNs and executors). That’s what “fee” refers to—not fees from Stargate or other apps.
How Is Transaction Volume Considered?
Q: Isn’t transaction volume an important factor in earlier discussions? Why remove it?
A: Transaction volume is a standard for Stargate RFP or OFT, but from LayerZero’s perspective, all messages are roughly equal. That’s why sending $100 or $100,000,000 in OFT incurs the exact same fee.
Q: Think about it—if we assign equal value to $100 and $100,000,000 transfers, then even a $0.000001 transfer should carry the same weight, since "all messages are roughly equal."
A: Yes, in an ideal world of equal utility, that might suffice. But we see massive amounts of $0.001–$0.20 low-value transactions just looping pointlessly, and countless valueless NFT transactions created solely to generate txs. I believe anything with reasonable utility should count as normal, while anything "obviously" inorganic should be down-weighted.
Conclusion
In short, transactions under $1 and NFTs with value below 0.00001 ETH will be treated as low-value (spam), with their weight reduced to 20% during incentive calculation—but this does not affect the weight of other normal transactions. Final allocation will be semi-linear with an upper bound cap based on protocol fees paid.
Additionally, early users will receive extra incentives, and non-standard LayerZero activities such as liquidity provision will be handled separately via RFP.
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