Eigen Layer airdropped tokens this week and there was large backlash. Some criticism was extra warranted than others however past allocation ranges and tokenomics, the primary purpose the outcry was so fierce is as a result of merchants felt a social contract was damaged.
First, the small print. EigenLayer distributed 5% of its 1.67 billion token provide this week. This was the primary section of its airdrop, which can distribute 15% of token provide to its customers.
Reminder that EigenLayer is DeFi’s third-largest protocol, with virtually $15 billion in whole worth locked (TVL), in line with DeFiLlama. It permits customers to re-stake their Ether or liquid staking tokens (LSTs) to earn further yield by securing third-party purposes referred to as Actively Validated Companies (AVS).
This was a vastly anticipated airdrop – it principally mobilized a complete sector inside Ethereum. For months, EigenLayer has awarded factors to restakers primarily based on the dimensions of their deposits and the way lengthy they participated in restaking. Then, liquid restaking protocols began giving out their very own factors, which might compound on prime of EigenLayer factors to customers staking there.
Free Cash Expectations
Merchants’ expectations that they’ll get what’s primarily “free cash,” is partially what has pushed over $15 billion to EigenLayer, and $10 billion to the liquid restaking sector as a complete.
So, all these merchants farming factors and staking ETH and LSTs and LRTs had been ready for this airdrop.
However it was a disappointment to lots of them and the backlash was so intense, it truly pushed EigenLayer to change the phrases of the drop.
5 Most important Factors
The details the EigenLayer group criticized had been:
- EigenLayer excluded liquid restaking protocols from the drop
- Eigen excluded customers from main jurisdictions together with the USA and Canada
- Solely 5% of tokens had been airdropped
- The linear allocation of tokens.
- EIGEN tokens are initially non-transferable.
Let’s get the simple ones out of the best way: EigenLayer excluded liquid restaking protocols from the drop, however they mentioned they would come with these of their Section 2. The Eigen Basis mentioned it’s already been in contact with these groups to coordinate the airdrop.
Subsequent, the purpose that EigenLayer additionally excluded customers from international locations together with the USA, Canada, Korea, Russia and China. That is in fact due to regulatory considerations. The listing of excluded international locations goes on and on.
On this case, I feel criticism is based, particularly as regards to excluding the U.S. It’s cheap to consider that a big chunk of Eigen’s TVL comes from U.S. customers. Taking a look at visitors for crypto web sites, not less than half comes from the U.S. That’s the place lively buyers in crypto are, and the place individuals who even have cash to put money into DeFi protocols are.
Some folks mentioned, “Eigen had no points taking cash from all these dangerous jurisdictions, nevertheless it’s being further cautious in giving cash away.” I feel they’re proper to name a double customary right here. You may’t have it each methods.
“By no means Promised an Airdrop”
I’ve additionally seen an argument that goes, “persons are crying as a result of they didn’t get an airdrop they had been by no means promised.”
To me that needs to be virtually insulting to any web3 native. In case you’re making a gift of factors, particularly you probably have billions in TVL, $100 million in VC funding, and have both introduced or hinted there’s a token developing, it’s anticipated these factors will correspond to tokens down the road.
To place it in crypto phrases, that is social consensus. It’s discovered habits in a group that has turn into a social contract. By incentivizing customers with factors in order that they stake their cash, however then not following by way of with the corresponding tokens, EigenLayer primarily broke that social contract.
“Solely 5% of Tokens”
Subsequent criticism is that “solely” 5% of tokens had been airdropped. That is an attention-grabbing one. The query is, is that this consistent with different airdrops or is it an outlier?
First, it’s essential to remember the fact that whole airdrop accounts for 15% of whole provide.
If that had been the full share reserved for the group, then that might certainly be extraordinarily low. For context, token allocations saved a median of 40% of tokens to group incentives or distributions in 2023, in line with a report by Liquify. Group allocation has been round 40% since 2019, the report exhibits.
However EigenLayer can be allocating 15% of tokens to group initiatives and 15% to ecosystem growth. Added all collectively, this group pool equals 45% – consistent with what’s been the norm.
When it comes to the 15% allocation for the airdrop, that’s additionally consistent with what most main tasks have carried out. Uniswap’s airdrop was for 15% of token provide, Arbitrum’s was for 12.75%, and Jito was for 10%, in line with analysis by IntoTheBlock.
I feel the rationale why 15% felt like a smaller share, is as a result of tokens had been distributed amongst extra folks. There have been 280,000 eligible wallets within the airdrop, in contrast with 250,000 wallets within the Uniswap airdrop, as an example. And that’s as a result of factors had signaled an airdrop was coming, and so extra folks had been incentivized to re-stake ETH and take part within the ecosystem.
Assured Minimal
Subsequent criticism was the linear allocation of tokens, which means eligible wallets obtain EIGEN proportionally to the factors they maintain. For instance, a pockets holding 100 Eigen factors will obtain 100 EIGEN. The Eigen Basis mentioned it selected the linear distribution method to forestall Sybil assaults, the place a person might use a number of addresses and bots to assert a disproportionately massive share of the airdrop.
The large criticism right here is that the small stakers are at an obstacle.
EigenLayer initially tried to steadiness issues out for small stakers by setting apart roughly 1% of the Season 1 tokens to ensure that every restaker will get not less than 10 EIGEN. After the outcry they elevated this minimal stage by 100, which means all Season 1 customers will obtain a minimal of 110 EIGEN.
Non-Transferabilty
The opposite criticism EigenLayer addressed is that EIGEN tokens are initially non-transferable, which means that holders will be unable to promote their tokens.
Eigen mentioned the rationale why they made the token non-transferable is to permit for group dialogue of EIGEN’s novel design, parameters, and proposed implementation; that they needed key funds and slashing options to be nicely established; and to enhanced decentralization by permitting for a broader distribution of EIGENs, together with by way of the 15% reserved for future stakedrop seasons.
The rationale why it’s problematic to make the token non-transferrable is that it offers an unfair benefit to insiders, who acquired bigger token allocations and are topic to vesting. Tokens of buyers and early contributors are locked for one 12 months, after which for the next second and third years, 4% of whole tokens are unlocked every month.
However say EigenLayer waited one 12 months till the token turned transferable. Meaning insiders can begin to instantly promote their tokens as quickly because it turns into tradable.
EigenLayer addressed this by clarifying that the lockup countdown begins after transferability.
Additionally they offered a clearer timeline as to when the token shall be transferable, saying the options they wish to see enabled for transferability are focused for the protocol’s mainnet launch in September this 12 months.
Factors Modified Airdrops
After analyzing every criticism, I perceive why folks had been upset with the geo-block and lack of transferability, however I don’t assume it’s honest to say the workforce was “grasping and didn’t distribute sufficient tokens,” as their token allocation is consistent with what’s been the norm.
However what’s clear is that the introduction of factors has materially modified the sport for airdrops. They launched larger expectations from token distributions, and in my view, rightfully so. Merchants and tasks are successfully coming into a social contract the place merchants put their capital in danger to carry out actions tasks are incentivizing with factors.
Why put cash in danger in trade for factors? As a result of there’s the expectation that these factors will turn into cash (through tokens) down the road. The expectation is there as a result of that’s successfully what has been taking part in out in DeFi, with a number of tasks’ factors techniques successfully resulting in airdrops, and full multi-billion greenback protocols constructed across the idea. By awarding factors, you’re coming into into this sport and it’s disingenuous to faux in any other case.
