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Why Eigenlayer’s Airdrop is controversial
Users of Ethereum restake pioneer Eigenlayer, many of whom are about to be rewarded with a massive launch of a new EIGEN token, they vote with their dollars. In response to what some called Eigen Labs’ overly complicated white paper and relatively limited rewards, users queued up to withdraw around 25,000 ether (ETH)worth approximately $72.7 million, from the platform.
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Eigen Labs, which recently lifted up $100 million from venture capital firm Andreessen Horowitz essentially pioneered the concept of retaking, the ability to repurpose capital from staking Ethereum to simultaneously secure other blockchains. Nearly $16 billion was locked on the platform, called the the biggest innovation in the field of cryptocurrencies in recent years.
According to the Eigen Foundation announcement on Monday, 15% of the initial 1.67 billion EIGEN tokens will be set aside for the community and spread across multiple “seasons.” The first users who have accumulated “points” will be awarded the first 5% of reserved tokens, with one point equivalent to one token. This could amount to a strong reward for users who have long been clamoring for a native Eigenlayer token.
However, many are annoyed by the project plan. Of particular concern is that the tokens will initially be non-transferable, rendering the cash reward essentially useless. Additionally, 30% of the tokens will go to Eigen Labs investors, with another 25% going to “early contributors.” While investors and early contributors will not be able to sell their tokens immediately, the vesting schedule begins when they receive the tokens – raising concerns, many tokens will be sold once they become transferable.
“EigenLayer team and investors get 55%, but stakers only get 5% and even that will be non-transferable at first,” cryptocurrency trader CoinMamba She said on X.
AS The block The token distribution plan reportedly echoes Starknet’s token airdrop that sparked controversy in February, before it was reformed after backlash from the community. Starknet’s token was created a year before it was made available for trading, which gave investors a head start on their maturation schedule and meant they could sell off within weeks of trading starting.
Another point of contention is that many Eigenlayer users will be excluded from the airdrop. Residents of the United States, Canada and China will not receive tokens (other than Russia), and users who interacted with the system via a VPN, a popular means of protecting privacy by routing through virtual networks, will also be excluded. This has angered some critics because users from these countries are not banned from interacting with the platform, although they are excluded from the reward.
“Accepting quotas from these countries and not rewarding them is not right,” said cryptocurrency researcher Aylo She said on X. “They took a very real risk for nothing.”
For his part, Eigenlayer said that making the token non-transferable for a few months will allow the platform to decentralize and understand how the token could be used. “Some milestones are expected to be achieved in the coming months before EIGEN becomes transferable and divisible,” the company said.
While some parts of the community reaction are more valid than others, it’s hard to criticize Eigenlayer’s plan to geofence U.S. users, given the U.S. Securities Exchange Commission’s (SEC) unclear guidelines on airdrops. As the Variant Fund’s lawyer, Jake Chervinsky noticed on
“Non-transferability and geofencing are both useful options when it comes to managing regulatory risk related to token distribution. They are simply not the only options, nor are they necessarily the right ones for every team and token,” he added. Making an asset non-transferable limits any “reasonable expectation of profit,” a key part of determining whether an asset is a security.
Furthermore, Eigenlayer is not the first and certainly will not be the last project to block US users or exclude them from token reward programs. While this policy punishes users who would otherwise be handed essentially free money – or money earned simply by clicking a few buttons – it is a reasonable response to the situation.
“Both of these options sit at the conservative end of the regulatory risk spectrum for token distributions. I call it a spectrum for a reason: Given the lack of regulatory clarity, each team (with the advice of their lawyer) must decide how much risk to take,” Chervinsky wrote.
It’s an interesting day when projects deemed to be at the cutting edge of financial innovation are forced to take a conservative approach.
FIX (MAY 1, 2024): Corrects the amount of ETH queuing to withdraw from the platform.