- Tapioca DAO is using call options for its upcoming airdrop.
- The idea was first floated by prolific DeFi dev Andre Cronje in 2021.
- The hope is the airdrop will address Sybil attackers and help the protocol stay competitive.
As crypto airdrops become more mainstream, the projects behind them have encountered a big problem: Sybil attackers.
These buccaneering DeFi players create multiple wallet addresses to spoof airdrops by pretending to execute legitimate activity, costing crypto projects millions.
They syphon rewards from legitimate users and compromise the integrity of the projects they target.
Tapioca DAO, a fledgling money market protocol built on LayerZero, says it has a solution. Instead of handing out free tokens, its airdrop will give users the ability to buy its native TAP token at a discounted price.
“If someone wants to Sybil, there’s a capital expenditure,” Tapioca DAO co-founder Matt Marino told DL News. “It’s kind of the same outcome. If you airdrop 1,000 tokens at a 50% discount that person ends up with 500 free tokens.”
Marino says Tapioca’s approach ensures that even if users do Sybil attack, they won’t just be extracting value — they will have to give something back.
Tapioca DAO is building a DeFi money market and stablecoin. It is built on LayerZero, a cross-chain bridge.
This lets Tapioca connect borrowers and lenders across different blockchains.
Inspiration from the DeFi godfather
The inspiration for the airdrop, Marino said, came from Andre Cronje, the so-called DeFi godfather behind protocols Yearn Finance, Keeper Network, and Solidly.
“He talked about call options, and I was a big fan of Keeper Network,” he said. “I just really agreed with the principle of what he was talking about, and we just ran with it.”
Cronje first floated the idea of incentivising using calls, derivative bets that pay off if a token price rises, in 2021.
Still, Tapioca’s plan has risks.
Marino said Tapioca is probably the first protocol to attempt an options airdrop. There’s a chance that Sybil attackers will find a loophole to exploit the untested mechanism.
It wouldn’t be the first time one of Cronje’s ideas has gone awry. When he launched Solidly in 2022, users gamed the protocol by voting on their own token liquidity pools.
The options airdrop
Tapioca DAO says its options airdrop will “create the most Sybil resistant, aligned, and value maximised airdrop ever performed.”
It’s scheduled to start on June 14, and will give TAP token call options to those who participated in the protocol’s launch auction, Pearl Club ONFT holders, and certain community members.
The first round of the airdrop will distribute options with a payoff price 50% below the final TAP launch auction price of $2.07, and will expire in one week. Subsequent rounds will give out options with a 25% to 50% discount.
If the TAP price falls below the payoff price of the options, they become worthless, potentially cutting off some users.
Marino said this situation is intentional.
“We’ve created a protection mechanism where if there’s not enough demand, and the token is falling, then inflation stops,” he said.
However, Marino added, the protocol was designed to incentivise holding TAP to avoid this issue.
Holders who lock up TAP in the protocol will receive the fees it generates. They’ll also be able to use their locked tokens as collateral to borrow against.
‘Hall monitors’
Marino criticised the popular approach to airdrops, where projects give out free tokens to users who meet certain criteria.
“You always end up losing a massive amount of value to people who are Sybiling,” he said.
Some projects have spent a lot of time and effort identifying and excluding Sybil attackers, with limited success.
Some even put bounties on them, and promise to give more tokens to users who can identify them.
This incentivises users to misreport legitimate users to projects in the hopes of securing more tokens for themselves.
“They’re putting hall monitors there to look,” Marino said. “It just doesn’t work.”
Tapioca’s endgame
Besides thwarting Sybil attackers, the options airdrop has another function.
Tapioca will use the money raised through the options airdrop to provide liquidity, a system known as protocol-own liquidity — or PoL.
Marino said many DeFi money markets and stablecoins end up being very illiquid.
“The way you make fees and profit off of a CDP stablecoin as a platform is from leverage. And if you have no liquidity, nobody can leverage it and then you have no fees,” Marino said.
CDP stands for collateralised debt position — in essence, creating dollar-valued tokens by locking up other tokens with a greater value as collateral.
MakerDAO’s DAI stablecoin uses a CDP model.
The hope is that if Tapioca can generate enough PoL, it won’t be dependent on mercenary liquidity providers and can offer competitive rates.
Whether Tapioca can achieve this is uncertain.
Other protocols that tried to generate PoL, such as Olympus DAO and Tokemak, have struggled to stay relevant.
Tim Craig is a DeFi Correspondent at DL News. Got a tip? Email him at tim@dlnews.com.
