Why traders are upset with EigenLayer’s airdrop

EigenLayer’s airdrop is causing an uproar.

On Monday, details for the highly anticipated airdrop were released, and traders who have been waiting for the chance to receive EigenLayer’s tokens are pointing to several issues with the protocol’s plan.

The first issue is the way EigenLayer will roll out the airdrop in stages, with 5% allocated for the first round and an additional 10% allocated for later rounds.

“Five percent is definitely too small, even if there will be multiple seasons. It should’ve been at least 7%-8% to get positive community feedback.” CC2Ventures, a trader and serial airdrop farmer, told DL News.

Allocation aside, other users, like Thor Hartvigesen, an investor at Heartcore Web3, felt that the main issue was the confusing communication surrounding the announcement, specifically regarding the allocation “complex DeFi protocols” will receive.

Hartvigesen also saw issues with how EigenLayer is preventing users from a dozen countries, including the U.S., as well as those who use virtual private networks, or VPNs, from taking part in the airdrop.

He finds it peculiar and perhaps even greedy that EigenLayer permitted these users to deposit Ether into the protocol, and yet now won’t let them claim EIGEN tokens.

Finally, Hartvigesen questioned why EigenLayer decided to introduce the token now if it will remain non-transferable, meaning users cannot trade or send the token until later in the year.

Overall, the airdrop has serious implications given the EigenLayer ecosystem grew to over $16 billion in crypto assets at the time of the airdrop announcement.

Liquid Restaking Protocols

Liquid restaking protocols grew in popularity as they enabled users to restake Ether in EigenLayer and receive a receipt of that token they could use elsewhere in DeFi.

For example, if you deposited Ether with Ether.fi you could then take your liquid restaking token, eETH, and use it in other DeFi protocols, or exchange it on the open market whenever you want.

Users depositing with liquid restaking protocols earned EigenLayer points at equivalent rates to their direct deposits and often received additional points for the protocol’s own tokens.

Typically, users who deposited in liquid restaking protocols will receive their EIGEN allocations in Season 1 Phase 1. However, more complex protocols like Vector Reserve, which offered a variety of liquid restaking tokens, will distribute allocations in Season 1 Phase 2.

The EigenLayer airdrop will be conducted in “Seasons” and “Phases.” Season 1 will distribute 5% of the total EIGEN supply, with 90% of that distributed in Phase 1 and 10% distributed in Phase 2. An additional 10% of the total supply will be released over the coming Phases and Seasons.

The only outlier is Kelp DAO, as it “tokenized” EigenLayer points earlier this year, meaning users could trade their EigenLayer points if they opted in.

The issue with this is that EigenLayer points weren’t a 1:1 conversion to tokens as Kelp DAO assumed they would be.

Additionally, since the snapshot for the first season was taken on March 15, and users could still trade and earn KEP after this date, anyone who bought after the snapshot wouldn’t qualify in the first season’s airdrop.

Following the EIGEN announcement, the price of KEP fell from around $0.141 to $0.001, before bouncing back to $0.083. Kelp DAO has paused trading of KEP until further details come out about how Phase 2 will work.

‘Complex DeFi Protocols’

More complex DeFi protocols that enabled some form of leveraged exposure to EigenLayer points will receive their EIGEN allocation in Season 1 Phase 2. That phase is expected to go live in about one month.

This included protocols like Pendle, a yield-trading market, and Gearbox, a leverage farming protocol, among a few others.

At first, there was confusion surrounding the allocation users of these protocols would receive, with some thinking they would be penalised or totally excluded from the EIGEN airdrop.

This prompted the EigenLayer Foundation to clarify that users of Pendle, Gearbox, and other complex DeFi protocols would receive the proper allocation of EIGEN based on their point totals.

Those protocols grew rapidly thanks to EigenLayer speculators, and now that the EIGEN token is launching, this speculation may subside, leading to capital flowing elsewhere.

Since the announcement Monday, PENDLE is down 17.4%, and GEAR is down 23.6% while Ether is down 4.6%.

In the last 24 hours, $7 million was withdrawn from Pendle, while the amount of crypto assets deposited on Gearboxk fell by $29 million, although the drop in the broader crypto market Tuesday also played a part.

Karak

Karak, one of EigenLayer’s only restaking competitors, is running a similar airdrop campaign, except users who deposit on Karak receive XP instead of points. It is expected that XP will later convert to tokens.

Karak accepts deposits in a number of different tokens, including EigenLayer LRTs.

Over $424 million has been deposited in the protocol since its launch on April 8, with around $15 million in deposits since Monday.

Following the release of EigenLayer’s airdrop details, many believe that Karak will be able to capitalise on assets exiting EigenLayer looking for the next airdrop opportunity.

Around 3,400 Ether was queued for withdrawal, a process that takes seven days, from EigenLayer Monday with an additional 3,500 Ether queued for withdrawal Tuesday.

Time will tell if these funds move to Karak.

Ryan Celaj is a data correspondent at DL News. Got a tip? Email him at ryan@dlnews.com.

Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.