Why the Eigenlayer giveaway is controversial

Users of Eigenlayer, the pioneer of the Ethereum remake, many of whom are about to be rewarded with a massive airdrop of the new EIGEN token, are voting with their dollars. In response to what some called Eigen Labs' overly complex whitepaper and relatively limited rewards, users withdrew about 150,000 ether (ETH) from the platform, worth about $457 million.

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Eigen Labs, which recently raised $100 million from venture capital firm Andreessen Horowitz, has essentially pioneered the concept of restaging—the ability to reuse capital to stake on Ethereum while simultaneously securing other blockchains. Almost $16 billion was locked on the platform, which was called the biggest innovation in Crypto in recent years.

According to the Eigen Foundation's announcement on Monday, 15% of the initial 1.67 billion EIGEN tokens will be allocated to the community and distributed over several «seasons». Early adopters who achieve «points» will be given the first 5% of these reserved tokens — with ONE point corresponding to ONE token. This could mean a hefty reward for users who have been clamoring for the native Eigenlayer token for a long time.

However, many are not satisfied with the project plan. Of particular concern is that the tokens will initially be non-transferable, essentially rendering the monetary reward worthless. In addition, 30% of the tokens will go to Eigen Labs investors, and another 25% are intended for «early authors». While investors and early Creators will be able to sell their tokens immediately, the vesting schedule begins when they receive the tokens, raising concerns that many tokens will be sold off as soon as they become eligible for transfer.

“The EigenLayer team and investors get 55%, but stakeholders only get 5%, and even that won’t be shared at the beginning,” Crypt told CoinMamba on X.

As reported by The Block, the token distribution plan mirrors the Starknet token giveaway that sparked controversy in February before it was reformed following community backlash. The Starknet token was created a year before it became available for trading, which gave investors an advantage in the vesting schedule and meant they were able to sell shares just weeks after trading began.

Another controversial point is that many Eigenlayer users will be excluded from the distribution. Residents of the USA, Canada and China are not going to receive tokens (along with Russia), and users who interacted with the system via VPN will also be disconnected — a popular means of protecting Privacy Policy by routing through virtual networks. This has irked some critics as users from these T countries are prohibited from interacting with the platform, although they are excluded from rewards.

“Taking a cut from these countries and not rewarding them is T,” researcher Krypt Aylo said on X. “They took a very real risk for nothing.”

For its part, Eigenlayer stated that banning the transfer of the token for several months will allow the platform to decentralize and determine how the token can be used. “Certain goals must be achieved in the coming months before EIGEN becomes portable and extensible,” the company said.

While some backlash from the community is more valid than others, it's hard to blame Eigenleier's plan to geofence US users given the SEC's unclear guidelines on airdrops. As Variant Fund lawyer Jake Czerwinski noted on X, the SEC has «persistently refused to provide a workable path» to register Crypto, exposing Eigenleier's team to potential legal jeopardy.

“Non-transferability and geofencing are useful options when it comes to managing regulatory risks associated with token distribution. These are just T the only options, and they are not necessarily suitable for every team and token,” he added. The creation of a non-transferable asset limits any “reasonable expectation of profit,” a key part of determining whether an asset is a security.

Cm. See also: EigenLayer-based Aligned Layer Raises $20 Million

Additionally, Eigenlayer is not the first and certainly not the last project to block US users or exclude them from token reward programs. While this Policy does penalize users who would otherwise be handed essentially free money—or money earned by just clicking a few buttons—it is a reasonable response to the situation.

“Both of these options are on the conservative end of the regulatory risk spectrum for token distribution. I call it a spectrum for a reason: Given the lack of regulatory clarity, each team (with the advice of its legal counsel) must decide how much risk to take on,” Czerwinski wrote.

It's an interesting day when projects that are said to be at the forefront of financial innovation are being forced to take a conservative approach.

Cm. See also: Why EigenLayer could be the most innovative new protocol since Ethereum