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Crypto’s $15B EigenLayer Project Snubs US, China in Divisive Token Launch
(Bloomberg) — Crypto project EigenLayer is poised to deploy a new token that has become the most hyped digital asset launch of the year, as well as one of the most controversial due to exclusions imposed on users in the U.S., China and elsewhere .
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The decentralized finance protocol – or DeFi – has attracted $14 billion in assets since January after a soft launch in 2023, data from DeFiLlama shows. EigenLayer offers so-called restaging, which promotes amplified returns based on the process of depositing Ether coins to help manage the Ethereum blockchain.
Seattle-based Eigen Labs has raised about $165 million from backers, including a16z Crypto, as part of the development of EigenLayer, which on Friday will begin sending its EIGEN token to users through a process known as an airdrop.
EigenLayer’s appeal is tied in part to a points system designed to reward early adopters with these tokens. Because it has yet to fully launch, the expected points and airdrops were the “main incentive” to invest funds in the service, said Kunal Goel, an analyst at Messari.
Read more: Cryptocurrency’s latest billion-dollar bet comes with layered risks
Countries excluded
Yet many of those who have accumulated points will be prevented from claiming tokens. Earlier this month, EigenLayer said that users of virtual private networks and residents of countries including the United States, Canada and China will be excluded.
“You can’t operate in the industry without following regulatory guidelines and being responsible, and the hard part is there’s not a lot of clarity,” Robert Drost, executive director of the Eigen Foundation, said during a recent podcast.
Many projects are taking a more conservative approach to distribution, said Nick Cote, co-founder of Secondlane, a secondary marketplace platform.
“Issuers who aren’t honest with jurisdictional restrictions leave a bad taste in people’s mouths when it comes time to receive your rewards, and then you find out you’re disqualified for reason X, Y, Z,” Cote said.
Increase in yield
EigenLayer’s retaking service enables applications in the broader Ethereum ecosystem to leverage the vast pool of transaction validators powering the most commercially successful blockchain. This in turn boosts the current 3% yield from simply staking – or depositing – Ether to help manage Ethereum, while adding layered risks.
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Eigen Labs did not immediately respond to emails and messages for comment on the token launch controversy. After pushback from the crypto community, EigenLayer made changes to its airdrop and announced plans to distribute an additional 28 million EIGEN tokens.
EigenLayer is now the second most popular DeFi application. This is partly at the expense of liquid staking, offered by platforms such as Lido and Rocket Pool. Liquid staking provides easier access to staking rewards and is the main DeFi category, but has seen notable outflows over the past couple of months.
According to data from DefiLlama, liquid staking protocols have seen a 27% decline in total value locked since their peak of $63 billion in March. According to an April 26 note published by IntoTheBlock, nearly 4% of all Ether is currently reprocessed using EigenLayer.
A spokesperson for Rocket Pool said that the cryptocurrency sector “has always been subject to short-term changes,” adding that “while points and airdrops can provide short-term incentives, these trends can reverse just as quickly.”
Investor interest in DeFi has increased over the past year alongside a recovery in cryptocurrency prices, including a doubling of Bitcoin. But the digital asset market’s rally has stalled lately, and the sector remains prone to intense volatility.
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