Users of the Ethereum restaking pioneer Eigenlayer, many of whom are about to be rewarded with a massive airdrop of a new EIGEN token, are voting with their dollars. In response to what some have called Eigen Labs’ overly complicated white paper and relatively limited rewards, users have queued to withdraw about 25,000 ether (ETH), worth about $72.7 million, from the platform.

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Eigen Labs, which recently raised $100 million from venture capital firm Andreessen Horowitz, essentially pioneered the concept of restaking — the ability to reuse capital to staked on Ethereum to simultaneously secure other blockchains. Nearly $16 billion has been locked on the platform, which has been called the single biggest innovation in crypto in years.

According to the Eigen Foundation’s announcement on Monday, 15% of the initial 1.67 billion EIGEN tokens will be set aside for the community and distributed over multiple “seasons.” Early users who accrued “points” will be airdropped the first 5% of those reserved tokens — with one point equating to one token. This could equate to a hefty reward for users who have long been clamoring for a native Eigenlayer token.

However, many are annoyed with the project’s plan. Of particular concern is that the tokens will be initially non-transferable, essentially making the cash reward worthless. Additionally, 30% of the tokens will go to Eigen Labs investors, with another 25% earmarked for “early contributors.” While investors and early contributors also won’t be able to immediately sell their tokens, the vesting schedule starts when they receive the tokens — raising concerns a lot of tokens will be sold off once they become transferable.

“EigenLayer team and investors are getting 55% but stakers are getting only 5% and even that will not be transferable at the beginning,” crypto trader CoinMamba said on X.

As The Block reported, the token distribution plan echoes Starknet’s token airdrop that stirred controversy in February, before it was reformed after community backlash. Starknet’s token was created a year before it was made available for trading, which gave investors a headstart on their vesting schedule and meant they were able to sell off just weeks after trading commenced.

Another point of contention is that many Eigenlayer users will be cut out of the airdrop. Residents of the U.S., Canada and China are not going to receive tokens (alongside Russia), and users who interacted with the system via a VPN, a popular means of protecting privacy by routing through virtual networks, will also be shut out. This rankled some critics because users from these countries aren’t barred from interacting with the platform, though they are being excluded from the reward.

"Accepting stake from those countries and not rewarding them isn’t right,” crypto researcher Aylo said on X. “They took a very real risk for nothing."

For its part, Eigenlayer said that making the token non-transferable for a few months will enable the platform to decentralize and work out how the token could be used. “Certain goals should be accomplished in the coming months before the EIGEN is made transferable and forkable,” the company said.

While some parts of the community backlash are more valid than others, it’s hard to fault Eigenlayer’s plan to geofence U.S. users, given the U.S. Securities Exchange Commission’s (SEC) unclear guidance on airdrops. As Variant Fund lawyer Jake Chervinsky noted on X, the SEC has “steadfastly refused to provide a workable pathway” for crypto token registration, putting Eigenlayer’s team in potential legal jeopardy.

“Non-transferability and geofencing are both useful options when it comes to managing regulatory risk around token distributions. They just aren’t the only options, nor are they necessarily the right ones for every team and token,” he added. Making an asset non-transferable limits any “reasonable expectation of profit,” a key part of determining whether an asset is a security.

Further, Eigenlayer is not the first and certainly won’t be the last project to block U.S. users or exclude them from token rewards programs. While this policy does punish users who would otherwise be handed essentially free money — or money earned for 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 distributions. I call this a spectrum for a reason: given a lack of regulatory clarity, every team (with the advice of their counsel) has to decide how much risk to take on,” Chervinsky wrote.

It’s an interesting day when projects said to be at the cutting edge of financial innovation are forced to take a conservative approach.

CORRECTION (MAY 1, 2024): Corrects amount of ETH queued to withdraw from the platform.

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Daniel Kuhn

Daniel Kuhn was a deputy managing editor for Consensus Magazine, where he helped produce monthly editorial packages and the opinion section. He also wrote a daily news rundown and a twice-weekly column for The Node newsletter. He first appeared in print in Financial Planning, a trade publication magazine. Before journalism, he studied philosophy as an undergrad, English literature in graduate school and business and economic reporting at an NYU professional program. You can connect with him on Twitter and Telegram @danielgkuhn or find him on Urbit as ~dorrys-lonreb.