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EigenLayer Plans EIGEN Token, but are There Warning Signs?

Last Updated May 9, 2024 1:47 PM
Teuta Franjkovic
Last Updated May 9, 2024 1:47 PM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • EigenLayer’s EIGEN token expands blockchain use cases with agreements on off-chain data.
  • EIGEN distribution favors stakers with linear rewards, though airdrop has regional restrictions.
  • Ran Neuner slams EigenLayer as VC-friendly: preferential token allocation and airdrop restrictions raise red flags.

The Ethereum staking protocol EigenLayer has recently unveiled a whitepaper  for its new native token, EIGEN. This token should, if its hype holds true help a range of services that need mutual agreement, such as prediction markets, storage services, and gaming platforms.

However, some members of the cryptocurrency community have labeled  EigenLayer as a “scam”, expressing skepticism about its operations.

EIGEN Token Strategy: Linear Rewards and a Path to Decentralization

The whitepaper  says that, while staked Ethereum will still be used to achieve consensus on on-chain, verifiable data, EigenLayer allows users to ‘restake’ their Ethereum. This means they can earn rewards by validating transactions across different networks.

EigenLayer’s token distribution strategy for its 1.67 billion EIGEN tokens, sets 15% for participants, including stakers. Due to compliance measures, individuals from certain regions, such as the US and Canada, cannot take part. The initial phase of the airdrop will allocate 5% of the tokens and is based on user staking activity recorded on a particular date.

The allocation of tokens within EigenLayer is calculated linearly, based how much Ethereum us staked and how long for. Additional rewards are provided for native restaking. Initially, as claims are processed, the tokens will be non-transferable. This should allow enough time for decentralization to take effect. It should also help the community to consensus regarding the token’s utility and governance aspects.

When EIGEN comes out, users will have the opportunity to stake it to support the platform’s EigenDA data availability layer.

Not Your Typical DeFi Coin

The whitepaper also discussed how some data, though not verifiable as true or false on-chain, can still be easily assessed by people using off-chain information. An example provided was the assertion “1 [Bitcoin] BTC = 1 USD [US Dollar],” which can easily be confirmed as false through readily accessible external data.

EIGEN poses as a “universal work token”, seemingly ideal for tasks that cannot be directly attributed. The potential applications for EIGEN are diverse. These include:

  • Prediction markets.
  • Storage services.
  • Cloud microservices.
  • Gaming virtual machines.
  • Exchange order-matching engines.
  • Databases.
  • AI training.

Crypto Influencer Calls Out EigenLayer Labeling it as “VC Scam”

Following the release of the white paper, Ethereum enthusiast and  salvino.eth tweeted that Eigenlayer team was live with their token airdrop  to its users.

Jake Chervinski, general counselor for Compound Labs stated  that the launch of the EIGEN token highlighted two key design choices: the token’s non-transferability and its unavailability to U.S. users of EigenLayer.

This viewpoint compels every token-launching team to consider how federal securities laws will treat their crypto. Many legal advisors, particularly inherently risk-averse compliance lawyers, often simply follow the regulator’s stance—if it’s deemed illegal, then it’s off the table. In traditional securities, compliance is straightforward: lawyers can either register the security with the SEC, such as in an IPO, or meet all the conditions for an exemption from registration, like a Regulation D private placement.

On another note, on April 22, the pseudonymous developer Chudnov warned  that Eigenlayer could potentially face a “yield crisis” due to the rate at which the value of assets locked on its platform is increasing, surpassing the growth needed to secure the network.

What Are the Red Flags?

On the other hand crypto advocate Ran Neuner expressed skepticism  about EigenLayer. The South African entrepreneur called it a “traditional VC [venture capitalist] ) scam”. Neuner pointed out several red flags with EigenLayer’s approach, including the early participation of venture capitalists at significantly low valuations coupled with a high initial market valuation targeting retail investors.

He also criticized the preferential treatment that insiders and VCs appear to receive in the token distribution process. Also, Neuner talked issues like the restricted access to token airdrops in regions that stand to gain from blockchain technology, as well as token lockup periods. He said those as unfairly burdened retail investors, rather than institutional participants.

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