NFT reward programs face challenges from fake claims and verification costs
NFT-Based Reward Mechanisms: Sybil Farming, Vesting, and Stochastic Verification
Computational Engineering, Finance, and ScienceDistributed, Parallel, and Cluster ComputingComputer Science and Game Theory
Summary
This paper looks at how people might try to cheat NFT reward systems by using many fake accounts to claim rewards unfairly. The authors study what happens when claims are checked randomly and when groups of linked accounts are punished together if cheating is found. They figure out the best number of fake accounts a cheater might use and what conditions stop cheating from being worthwhile. They also explore how the system’s timing for giving rewards and the cost of checking claims affect honest and dishonest users. Finally, they discuss what this means for NFT systems running on fast blockchain platforms.
What this means in practice
- •For blockchain platform operators: Design reward systems that balance audit cost, penalty size, and vesting to deter fraudulent claims on NFT platforms.
- •For online reputation managers: Improve Sybil attack defenses by linking identities into clusters with joint penalties, reducing fraudulent benefit from multiple fake accounts.
A theory result. No direct application yet.
Authors
Marco Alberto Javarone, Stefanos Leonardos, Carmine Ventre
Abstract
We study NFT-based reward mechanisms in which a user can create multiple identities and submit fraudulent claims that mature a reward subject to vesting. We assume that the issuer stochastically verifies claims during the vesting period and that identities can be linked into clusters so that the detection of one identity submitting a fraudulent claim causes the whole cluster to be forfeited through a penalty. A farmer's payoff is then non-linear in the number of identities: rewards increase linearly, while the probability of avoiding detection decreases geometrically. We characterise the optimal farming scale in the continuous relaxation of the problem. This allows us to derive a sufficient condition for deterrence and then consider the issuer's choice of reward vesting and claim verification. Vesting reduces the probability that a fraudulent claim is paid but also affects genuine participants, while verification is costly for the issuer. We characterise the sufficient deterrence frontier for the issuer in terms of auditing cost, vesting schedule, and penalty value. When small amounts of audit capacity can be added at negligible marginal cost, vesting alone is not optimal. We also distinguish the role of penalties from that of cluster-level auditing. Finally, we discuss the implications for NFT reward programmes on high-throughput ledgers, such as Hedera.