Airborne Farming Downside: Scroll loses $170M in TVL

The rise and subsequent fall of Scroll’s TVL is proving to be emblematic of a broader trend in the crypto space. Indeed, short-term incentives such as airdrops can lead to rapid TVL growth; On the other hand, they run the risk of not supporting sustained user engagement.

Scroll’s total locked value (TVL) surged ahead of the highly-anticipated October 19 snapshot. This snapshot was part of the protocol’s strategy to distribute its SCR tokens via airdrop. As reported by BeInCrypto, the October 9 announcement sparked a flurry of activity as farmers rushed to increase their stakes in hopes of qualifying for token rewards.

DefiLlam data shows that between October 9 and 16, Scroll’s TVL grew by $157.70 million, from $838.05 million to $995.75 million, an increase of nearly 20% for the week. However, Scroll’s TVL surge was short-lived: it began to decline in the days leading up to the film, and currently stands at $824.82 million.

To go further: What are crypto airdrops?

As a reminder, TVL (from English Total value locked) indicates the total value of assets locked in the decentralized finance (DeFi) protocol. An increase in TVL generally indicates an increase in the amount of funds stored and used within DeFi platforms. On the other hand, the decrease in TVL indicates a decrease in the amount of assets locked in DeFi protocols.

To go further: What is a cryptographic airdrop

TVL declines can generally be attributed to various reasons such as market volatility, changes in user behavior, or events impacting the DeFi space. For Scroll, this rapid decline highlights a common problem with drop farming. While these events may cause short-term increases in liquidity, they generally do not lead to long-term user engagement or value retention.

So, even as the wait for the Scroll drop ends, some participants remain unsatisfied, citing concerns about unfair hoarding of large amounts of tokens by insiders.

“The Scroll team is super stingy! After allocating 23%, they also decided to rig the airdrop by allocating more than 1 million tokens to each team,” said Anon Vee, a crypto investor and trader on X.

A rapid influx of liquidity is typical of airdrop farming, where short-term participants eager to qualify for a given airdrop inject capital into the protocol. By temporarily increasing their holdings on the platform, these participants hoped to secure a share of Scroll’s SCR tokens before the distribution event.

What is the real impact of an airdrop on project liquidity? ?

The Scroll team seems to have used an airdrop snapshot strategy to attract new users, capitalizing on the buzz these types of events usually generate. Airdrops actually offer participants the chance to win free tokens. However, while some see this as an opportunity to hold assets at the right time, others are only involved in token distribution without a long-term interest in the project.

The downside of this strategy is the dilution of rewards for loyal users. Indeed, airdrop farmers who only participate for rewards and only add liquidity for a short period of time can claim a large portion of the token distribution. This can frustrate long-term supporters of the project who feel their contributions are undervalued.

This issue is not unique to Scroll. Airdrop farming has become commonplace in the crypto space, with projects like Mode Network, Manta, and ZKSync seeing similar jumps in total value locked before the snapshot, only for the numbers to drop after the farming period. This volatility affects the stability of the project and can erode user confidence.

As a growing trend, projects must therefore find ways to create incentive structures that reward long-term commitment without making themselves vulnerable to short-term speculators. The challenge for Scroll and others will be to retain users after the landing.

Moral of the story: Where there’s a parachute, there’s bad guys.