Active User Count Can Be Misleading in Crypto Ecosystems, Warns Blockchain Analytics Provider
Summary:
Measuring the state of a crypto ecosystem based on active user count can be misleading as a small group of entities can generate a significant portion of activity. Blockchain analytics provider 0xScope's co-founder, Philip Torres, highlights that up to 80% of blockchain activity may be generated by a few entities, despite seeming healthy. Torres explains that these entities control multiple addresses, making it appear as if there are more users. This phenomenon is seen across different blockchain ecosystems. Multiple wallet addresses can be used for legitimate reasons, but they can also be exploited for malicious purposes.
Measuring the state of a crypto ecosystem solely based on active user count can be misleading, according to Philip Torres, co-founder and chief data scientist of blockchain analytics provider 0xScope. Torres argues that a small group of entities, including monopolistic founders, bots, exploiters, and airdrop hunters, can generate up to 80% of blockchain activity, despite the appearance of a healthy user base. He explains that projects often claim to have a large number of active users, but in reality, there may be a small number of users controlling multiple addresses. This phenomenon is not limited to small-scale ecosystems, as all blockchain ecosystems see varying levels of this activity. Torres found that the average Ethereum user has at least 10 addresses, highlighting that on-chain activities may not be what they seem. While there are legitimate reasons for users to have multiple wallet addresses, such as privacy concerns or deploying different trading strategies, malicious actors have also exploited this to inflate project metrics or engage in Sybil attacks. An example of this deceptive activity occurred during the Arbitrum airdrop, where two wallets accumulated a significant amount of ARB tokens from numerous wallets. Torres emphasizes that controlling multiple public addresses on the blockchain is relatively easy compared to managing multiple email addresses.
Published At
9/13/2023 6:17:00 AM
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