Sybil attack concerns spark controversy for EtherFi airdropped ETHFI token

Liquid restaking platform EtherFi’s ETHFI token has faced considerable struggles since its airdrop, partly due to one of its early investors selling their airdropped tokens.

Blockchain analytical firm Nansen reported how Arrington XRP Capital, one of EtherFi’s investors, allegedly may have gamed EtherFi’s airdrop process for personal profit.

Arrington ‘sybils’ EtherFi

Nansen’s findings reveal that Arrington XRP Capital staked 5,000 ETH across ten separate wallets, each containing 500 ETH. This move allowed the firm to claim the ETHFI airdrop from ten separate wallets, amassing 200,498 ETHFI tokens.

Subsequently, all the airdropped tokens were transferred to the Binance crypto exchange, suggesting the firm might have divested its holdings.

Such maneuvers, known as Sybil attacks, are usually frowned upon in the industry as they enable individuals to manipulate a network by utilizing multiple identities and potentially circumventing vesting schedules.

Several community members, including blockchain sleuth ZachXBT, immediately voiced concerns about Arrington XRP Capital’s actions while highlighting the unfair advantages the project gained.

Since the March 18 airdrop, ETHFI’s price has faced considerable sell-pressure, declining by more than 32% within the last three days to as low as $2.83 before rebounding to $3.24 as of press time, according to CoinMarketCap data.

EtherFi and Arrington defend action.

EtherFi’s team defended Arrington’s action, asserting that the investment firm duly informed it about the multiple wallet staking strategy.

According to EtherFi, Arrington belonged to the top-tier staker category, with a linear distribution model in place. Consequently, the multiple wallets did not equate to the firm garnering additional points.

The project added:

“These assets, including the ETHFI tokens is a very small percentage of their position and it’s part of their liquid fund which is actively traded, and that is the reason the assets were moved to Binance.”

Despite this explanation, some community members remained skeptical, suggesting that Arrington’s maneuver might have been a means to bypass the three-month vesting period applicable to wallets holding over 25,000 ETHFI tokens.

In response, EtherFi stated that Arrington was unaware of the vesting period, as the decision was made shortly before the airdrop.

Meanwhile, Arrington Capital also denied Sybil attacking EtherFi, saying:

“This was not a sybil attack and did not take advantage of the protocol’s distribution methodology. Because each account was over a minimum threshold in value, the airdrop distribution was linear. This means that the total number of ETHFI tokens airdropped to our wallets is the same as if all the eETH was in one wallet.”

It further explained that it only sold a small percentage of its ETHFI allocation, amounting to just $700,000, representing a tiny percentage of its overall position in the project.

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