What's the Problem with EigenLayer's $EIGEN Token?

EigenLayer's much-anticipated $EIGEN token airdrop has stirred significant controversy right from its announcement. The protocol faced criticism due to several restrictive provisions and allocation strategies that deviate from community expectations.

Let’s learn more about what’s happening behind the scenes…

Initial Excitement and Subsequent Disappointment

EigenLayer announced its native token’s airdrop, scheduled for May, sparking initial excitement within the cryptocurrency community. However, details about the distribution quickly led to widespread disappointment, highlighting recurrent issues with allocation strategies in blockchain initiatives. 

Since its inception in June of the previous year, EigenLayer has allowed users to deposit and restake Ethereum from various liquid staking tokens, becoming the second-largest DeFi protocol with $15.64 billion in total value locked, according to data from DefiLlama.

Allocation and Transferability Issues

The native token, totaling 1.67 billion, was introduced to enhance the EigenLayer ecosystem. However, the independent non-profit Eigen Foundation allocated 45% of these tokens to community-related activities, including stakedrops, community initiatives, and ecosystem development. 

Despite this seemingly generous allocation, the community's enthusiasm waned upon learning that only 15% of the tokens would be distributed through what EigenLayer termed a “stakedrop.” Specifically, in the first distribution season, just 5% of the total token supply will be awarded to users based on a snapshot of their staking activities as of March 15, 2024.

Moreover, of this allocation, 90% won’t be claimable until May 10 and will not be immediately transferable, compounding the frustration. In contrast, 55% of tokens are reserved for investors and early contributors, provoking vocal criticism within the crypto community over token distribution fairness.

Trading Restrictions and Strategic Goals

The Eigen Foundation has set specific “goals” to accomplish before allowing $EIGEN to trade freely. This includes conducting lengthy community discussions to solicit feedback on the token’s design, as well as establishing and understanding key payment and slashing features before $EIGEN becomes transferable. 

“We believe this approach will best support the long-term growth and maturity of the EigenLayer ecosystem,” the foundation stated. 

 

The lack of transferability made $EIGEN untradable for the foreseeable future, dissatisfying many community members.

Snapshot Timing and Linear Distribution Concerns

Further, the community criticized the choice of March 15 for the snapshot vote to determine allocation addresses. Some community members were upset about the vote’s timing because they wanted points earned after March 15 to be included in the airdrop tally for season 1, although these will be considered for subsequent seasons. 

Furthermore, EigenLayer’s airdrop follows a linear distribution model, which means a user’s percentage of total points directly corresponds to their share of the initial community distribution. This method typically favors whales over smaller investors, exacerbating concerns about equity and fairness in the distribution process.

Confusion Arising from Airdrop Documentation

The publication of documents detailing the specifics of the airdrop coincided with the announcement but fueled confusion rather than clarity. Several users misunderstood the phases and seasons of the airdrop schedule, especially concerning their eligibility to participate in positions related to the decentralized finance protocol Pendle. 

Although phases and seasons describe different periods within EigenLayer’s airdrop strategy, this distinction was not immediately clear to all, leading to further frustration within the community.

Early Pendle adopters expressed outrage after being excluded from EigenLayer's first airdrop.

Wider Implications and Community Reaction

This confusion and dissatisfaction with the airdrop’s execution reflect broader debates over fairness and transparency in cryptocurrency token distributions. 

Voices within the community, like those on EigenLayer’s Discord and X (formerly Twitter), have expressed significant discontent, pointing out the perceived disadvantages of the linear allocation model and the restrictive conditions placed on the newly minted tokens. 

The sentiment has been particularly negative among early adopters and smaller investors, who feel sidelined in favor of new, larger-scale participants.

According to cryptocurrency investor CoinMamba, the allocation is uneven.