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“Incentives matter, intentions don’t.”

- Thomas Sowell

The Gravitational Pull of Airdrop Farming 

In the run-up to the Great Financial Crisis of 2008, it became increasingly clear that the investment banking industry was becoming a black hole of human capital.

Around that time, meeting a derivatives salesperson who had recently joined the trading floor I worked on made me think something was amiss. 

I was impressed to find out that the new joiner had just graduated from Cambridge University with a PhD in chemistry.

I was disturbed to find out that he was now spending his days giving PowerPoint presentations to customers on how to trade options. 

Another new joiner I met was a materials science engineer who should have been working on, I don't know, making airplanes lighter or something.

Instead, he was working on how to make customers trade more structured products.

The most egregious example of misdirected talent, however, was a new derivatives quant I met at a team dinner — a nuclear physicist, just relocated to London from Moscow, who told me that his new job was not entirely dissimilar to his old one.

The new job? Forming portfolios of derivatives that might “explode in value.”

The previous job? Ensuring that aging nuclear power plants did not explode.

I couldn’t blame him for laughing when I politely requested that he immediately resign and return to his previous job — as a derivatives quant employed by an investment bank in London, he was making nearly 100x the money he made as a nuclear engineer employed by the government in Russia.

Shortly thereafter, the Great Financial Crisis exploded the world economy and that was, of course, an economic disaster. 

But the crisis did have one happy benefit: A lot of those mis-employed PhDs were released from the gravitational pull of investment banking.

Unscientifically, I think this might even have been why we had a financial crisis.

Investment banking was such a black hole of intellectual talent that the global economy had gotten dangerously unbalanced in the direction of finance.

The crisis resulted in the reverse brain drain we needed to rebalance.

On a much smaller scale, crypto may similarly be in need of rebalancing.

Show me the incentives…

Countless hours of human capital are currently being expended on the resurgent phenomenon of airdrop farming.

It’s no mystery why.

In last week’s STRK airdrop, a developer reported receiving $3,200 worth of STRK tokens in return for correcting a single spelling mistake on GitHub.

A more deliberate airdrop hunter received $2.4 million worth of STRK tokens over 1,800 wallets.

1,800!

This is nice for them, but not so nice for the industry: Rewarding GitHub commits has resulted in a tidal wave of frivolous code commitments and rewarding wallet spam has resulted in a tidal wave of useless transactions.

In isolation, that may not harm anything. But there is an opportunity cost to all of this unproductive activity. 

Just as investment banking drew nuclear engineers away from the more productive activity of preventing nuclear accidents, airdrop farming draws the limited pool of crypto engineers, users and investors away from finding something — anything! — more productive to do.

Instead of building new infrastructure, funding useful protocols, or imagining new use cases, we are buying up JPEG NFTs, spamming new projects and grinding pointlessly in Discord.

Most egregiously, it’s widely believed that, in many cases, developers have farmed the airdrops of tokens being issued by the projects they work for — a crypto version of insider trading that is, at best, a distraction to developers and, at worst, a threat to the already tenuous trust that users and investors place in new crypto projects.

The projects generally mean well — airdrops can be a way to attract usage, reward a community and decentralize a protocol.

But it's incentives that matter, not intentions.

The incentives aren’t working.

Reverse engines, please

The purpose of financial markets is to allocate investment capital, and the purpose of investment capital is to allocate human capital.

Even when well-intentioned, airdrops are directing both those forms of capital in unproductive directions.

Critics would say the same about the crypto industry as a whole — surely, they argue, crypto’s 22,000 active developers could be doing something more socially beneficial than creating yet more magic internet money.

But 22,000 developers is not a lot! 

Microsoft alone is thought to employ roughly 70,000 software engineers.

Crypto's human resources are limited, and if a large portion of those resources get allocated to airdrop farming instead of building new infrastructure and imagining new use cases, crypto’s critics could turn out to be right.

It may take a reverse brain drain to ensure that they’re not.

― Byron Gilliam

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