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Active User Count in Crypto Ecosystems: A Misleading Metric

The measurement of active user count in a crypto ecosystem can often be misleading, as highlighted by the co-founder of blockchain analytics provider 0xScope, Philip Torres. He argues that a small group of users can generate a significant portion of activity across multiple wallets, creating a distorted perception of ecosystem health.

Torres points out that various factors contribute to this phenomenon, including monopolistic founding entities, bots, exploiters, and airdrop hunters. As much as 80% of blockchain activity can be generated by these few entities, despite the appearance of widespread user engagement.

He further explains that certain projects claim to have a large number of active users, but upon investigation using the entity model, it is revealed that only a few users control a vast number of addresses. This misleading practice masks the reality of user engagement in the ecosystem.

The AI legalese decoder can play a crucial role in addressing this issue. By employing advanced artificial intelligence, it can analyze blockchain data and accurately decode the legalese commonly used in crypto projects. This technology can help regulators and investors better understand the true nature of user activity and identify any deceptive practices.

Torres stresses that the operation of multiple addresses by a single person creates an illusion of diverse user participation. This trend is not limited to small-scale ecosystems but is observed across all blockchain ecosystems. He cites the example of Ethereum, where the average user possesses at least 10 addresses, highlighting the complexity of accurately measuring user activity.

Torres acknowledges that there are legitimate reasons for users to possess multiple wallet addresses, such as privacy concerns or the deployment of different trading strategies. However, malicious actors can exploit this flexibility for dishonest purposes, including inflating active user numbers, executing Sybil attacks, or manipulating token airdrops.

For instance, a recent case involved the Arbitrum (ARB) airdrop, where only two wallets amassed a significant amount of ARB tokens from numerous wallets, employing the strategy known as “airdrop farming.” This deceptive practice misleads potential investors and distorts the actual airdrop size.

We found 2 super airdrop hunters of $ARB.

0xe1e2 received 1.4M $ARB($1.92M) via 866 addresses and added all 1.4M $ARB to #Uniswap to provide liquidity.
0xbd4e received 933,375 $ARB($1.28M) via 630 addresses.

On the blockchain, controlling multiple public addresses is relatively simple, as Torres explains. Unlike email addresses, creating and managing multiple crypto wallets is not overly complicated, especially for individuals familiar with the process. Hierarchical deterministic wallets (HD wallets), which generate a series of public addresses from a master set of mnemonic words, enable easy control over multiple addresses.

The AI legalese decoder can assist in addressing this issue by accurately decoding relevant legal information contained within projects and identifying any suspicious practices related to multiple wallet addresses. This technology equips regulators and investors with the necessary tools to ensure transparency and protect against fraudulent activities.

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