Crypto Incentives Are Weird
EDIT 2025-10-23 footnote 4 linking to data
EDIT 2025-10-24 footnote 5 on chargebacks
Trying to channel my best Matt Levine here...
A week ago, Farcaster announced a new Deposit Rewards program. Announcement details here1, and there's a Notion doc2 that gives more information.
Basically, as enticement for people to use their embedded crypto wallet in a social media app:
- users who deposit money into an embedded wallet
- will receive 10% over 10 weeks, that is, 1% per week
- on any funds that were sent after the announcement of the program
- and funds must stay on the platform in order to receive the bonus
That's 52% APY payable in USDC, a pretty appealing offer. The limits are:
- works for up to $5k
- they don't have to pay you, if they consider you are not "legitimate"3
- they don't tell you the exact rules, as telling the exact rules invites rules parsing
My friend at the time wrote to me:
This is so gross
I replied huh, this looks like a great deal! wdym? He clarified:
store $5k via your phone wallet and risk attack vectors for a free $500
Ah, bad opsec to carry so much value around in your pocket.
Today, for hundreds of accounts, Farcaster accidentally paid not 1% but 100% of the deposit rewards. The co-founder shared the mistake, including: "You can keep the payment if it happened to you." The funds were sent onchain4, and it would be a bad look for them to claw back the mistaken transfers5.
In perfect hindsight, the deal was not risk of carrying around a lot of money in your pocket, for upside of $500.
There was also an off chance the well-funded company with reputable investors would gift you another $5k in one week!
Riddle me this: if you saw a company rewarding its authentic users so generously, would a rational actor be more likely to participate, or not to participate?
https://farcasterhq.notion.site/Deposit-Rewards-2846a6c0c10180a2b415d882132095a3↩
they actually disqualifed ~25% of deposits↩
transaction details were shared on Farcaster almost immediately. I waited to update this blog post with the transaction hash, for the safety of recipients. However, there was some slander about people who had received funds multiple times via alt accounts. For transparency, here is the processed data: csv and some analysis↩
I originally published this paragraph as "so there's actually no way to claw back the mistaken transfers". Based on pushback from a reader, and my own reading here and here, I think my original statement was WRONG. Nobody outside of the blockchain sequencer/validator(s) can invalidate, erase, or reverse an onchain transaction that has achieved consensus. However, ANYBODY can create an offsetting NEW transaction, and this particular kind of wallet can be made to sign the transaction, at the server or at the user level. Also, an address holding USDC could be blocklisted at the token contract level, and Farcaster could embargo any portion of the wallet at the client level. Both have happened before, affecting a small percentage of holders.↩