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News/EigenLayer Under Fire: Airdrop Exclusions Ignite Community Backlash

EigenLayer Under Fire: Airdrop Exclusions Ignite Community Backlash

Van Thanh Le

May 2 2024

3 weeks ago3 minutes read
Cubic robot dispersing digital tokens during an EigenLayer event

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Crypto Community's Verdict on EigenLayer's Airdrop Strategy

Following a wave of anticipation, EigenLayer's announcement on April 29, 2024, regarding the distribution of 15% of its 1.67 billion EIGEN tokens through a "stakedrop" stirred varied reactions among users. 

stakedrop.webp
Source: EigenLayer's blog post.

Initially earmarked for Season One participants, the decision to make just 5% of the EIGEN tokens available—and with restrictions on their transferability until a future date—has not been well-received, fueling discontent within the community. 

This arrangement also involves a considerable waiting period; a substantial 90% of these tokens will remain unclaimable until May 10, 2024, and they won’t be immediately transferable upon release.

Adding to the tension, the airdrop has excluded potential participants from 30 countries, including major markets like the United States, Canada, China, and Russia, with EigenLayer implementing stringent measures to prevent circumventing these restrictions via VPNs. This move sparked additional grievances among those excluded. 

Notably, the distribution of tokens has also been a point of contention. Prominent voices in the crypto space, including investor CoinMamba and analyst CryptoTelugu, have openly criticized the uneven allocation that favored insiders and early contributors with 55% of the tokens, leaving only 5% for community stakers.

In defense of the stakedrop’s structure, Henrik Andersson, CIO at Apollo Capital, argued that the linear distribution model was designed to be the most equitable solution, aimed at circumventing issues like Sybil attacks, and highlighted the benefits of the stakedrop’s no-connection, no-signature verification process for checking allocations. 

However, community feedback suggests a preference for a more generous token distribution, proposing that a fairer approach might involve rewarding each eligible user with at least 100 tokens to better balance the perceived disparities.

Prompted by the strong community feedback, discussions within the Eigen Foundation about a potential reevaluation of their airdrop strategy have begun, reflecting a critical need to sustain support and goodwill among the broader crypto community.

EigenLayer Faces Surge in Withdrawals Amid Airdrop Challenges

Following concerns about the distribution of recent airdrops, EigenLayer has experienced a noticeable surge in withdrawals. Since the end of April, 14,000 wallets—about 13% of all users—have moved to withdraw their funds. This uptick in activity stems from users' dissatisfaction with how the airdrop was managed.

Dune.png
Daily EigenLayer Withdrawal Queue Count. Source: Dune

So far, the total extracted funds have risen to around 30,600 ETH, which translates to around $89 million. This figure constitutes 0.6% of the protocol’s total value locked, suggesting that it's predominantly the smaller investors who are pulling out their stakes.

Before the controversy, EigenLayer stood as a titan in the decentralized finance (DeFi) realm, ranking as the third-largest protocol with a TVL of $16.3 billion, as reported by DeFiLlama. The platform’s unique offering allows users to re-stake Ether or liquid staking tokens on third-party applications, thereby amplifying their yield through what is known as Actively Validated Services.

tvl.png
Source: DeFiLlama

EigenLayer's Airdrop Adjustments Spark Crypto Buzz

Following a wave of community feedback, Ethereum restaking protocol EigenLayer announced a significant token adjustment on May 2, 2024. The protocol is set to distribute an additional 28 million EIGEN tokens.

In a recent blog post, the restaking protocol revealed that Season 1 claimants will receive a minimum of 110 EIGEN, with Season 2 claimants set to get a minimum of 100 EIGEN. The announcement also mentioned an added bonus to the airdrop for Season 1 participants, emphasizing the distinctions between the two claimant groups.  

While these tokens are not yet available for public trading, their perpetual futures contracts are currently priced around $10 each, according to Aevo data, bringing the total value of the new airdrop to approximately $280 million. 

aevo eigen.webp
Source: Aevo

The series of announcements and subsequent adjustments have ignited a media frenzy, with crypto enthusiasts and industry experts alike closely scrutinizing EigenLayer's every move. This scenario encapsulates the delicate equilibrium crypto projects must strike between technological innovation, community expectations, and transparent communication – a balance that could make or break their success in the ever-evolving digital asset landscape.

Crypto projects must balance tech, community, and communication for success

The Eigen Foundation has also detailed a schedule for token unlock, tying these dates to the successful mainnet launch targeted for September 30, 2024. Post-launch, the community will have the opportunity to vote on activating token transferability. Following this, there will be a structured lockup period where private investors and team members will undergo a one-year lock-up, followed by a phased unlocking of 4% per month over three years.

In an effort to correct previous oversights, EigenLayer has also committed to revising allocations for certain testnet users who were initially overlooked. This update is expected to roll out in Phase 2 of Season 1, with more details to be released soon.

Conclusion

EigenLayer's airdrop strategy sparked controversy due to limited token allocation, exclusion of major countries, and an uneven distribution favoring insiders. The community backlash led to a surge in withdrawals, but the financial impact was minimal. EigenLayer now faces the challenge of regaining trust and support.

FAQs

1. Why are users upset about EigenLayer's airdrop?

Users criticize the airdrop for making only 5% of tokens available, excluding participants from 30 countries, and allocating a larger share to insiders than to community stakers.

2. How did EigenLayer defend their airdrop strategy?

EigenLayer claims their linear distribution is fair and avoids Sybil attacks. They also emphasize the ease of checking allocations without needing connections or signatures.

3. What changes might EigenLayer make to their airdrop?

The Eigen Foundation is considering changes due to community feedback. A popular suggestion is to distribute at least 100 tokens to each eligible user for a more balanced allocation.

4. How has the airdrop controversy impacted EigenLayer?

While the total value locked barely changed, over 13% of users withdrew their funds in protest. This suggests dissatisfaction primarily among smaller investors.

This article has been refined and enhanced by ChatGPT.

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