The total value locked (TVL) of Scroll, an Ethereum Layer-2 (L2) network, has decreased significantly. After reaching a peak on October 16, 2024, it has dropped by $170 million.
The rise and fall of Scroll's TVL symbolizes a broader trend in the cryptocurrency space. Short-term incentives like Airdrops can drive rapid TVL growth, but may not sustain long-term user engagement.
Scroll TVL Plummets as Airdrop Farmers Depart
Scroll's total value locked (TVL) spiked in the lead-up to an important snapshot scheduled for October 19. This snapshot was part of the protocol's strategy to distribute its own SCR token through an Airdrop. As reported by BeInCrypto, the October 9 announcement prompted Airdrop farmers to rush to increase their holdings in the hopes of receiving token rewards.
According to data from defillama, Scroll's TVL increased from $838.05 million to $995.75 million, a $157.7 million or nearly 20% increase, between October 9 and 16. However, Scroll's TVL surge was short-lived. It began decreasing from the day before the snapshot and currently stands at $824.82 million.
Read more: What Are Crypto Airdrops?
TVL represents the total value of assets deposited in decentralized finance (DeFi) protocols. An increase in TVL generally indicates a growth in the funds being deposited and utilized within a DeFi platform, while a decrease signifies a reduction in the assets locked in the DeFi protocol.
A decline in TVL can signify various factors, such as market volatility, changes in user behavior, or events impacting the DeFi space. In Scroll's case, the sharp decrease highlights the typical issues with Airdrop farming. Such events can trigger a short-term liquidity surge, but often fail to translate into sustained user engagement or value retention.
While waiting for the Airdrop, some participants are not satisfied. Some users are particularly concerned about insiders allegedly claiming an unfairly large portion of the Airdrop.
"The Scroll team is too greedy! After allocating 23% to themselves, they are trying to claim the Airdrop by allocating over 1 million tokens to team addresses," said Anon Vee, a cryptocurrency investor and trader.
Enthusiastically using a new platform and chasing Airdrops is a common DeFi investment strategy, especially in the early stages of a project. Short-term investors often inject their capital into nascent protocols and increase their activity to qualify for Airdrop rewards. They did the same with Scroll, ramping up their engagement to secure the SCR token Airdrop.
The Impact of Airdrops on Project Liquidity
The Scroll team appears to be using the Airdrop snapshot strategy to attract new users. They are leveraging the excitement around these events to offer participants the possibility of obtaining free tokens. While some view it as an opportunity to hold assets at the right time, others participate solely for the token distribution, without long-term interest in the project.
One downside of this strategy is the dilution of rewards for loyal users. Airdrop farmers who only add liquidity in the short term can claim a significant portion of the token distribution. This can make long-term supporters feel that their contributions are undervalued.
This issue is not unique to Scroll. Airdrop farming has led to similar TVL spikes and subsequent declines in projects like Optimism, Manta, and ZKSync. This volatility can impact the stability of the project and erode trust among users.
Read more: The Best Airdrops to Look Out for in 2024
As this trend continues, projects will need to find ways to design incentive structures that reward long-term commitments without being vulnerable to short-term speculators. Retaining users after the Airdrop event ends will be a challenge for Scroll and others.
