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EigenLayer token EIGEN suspected of lack of supply transparency, is there a reason for EIGEN's inability to rise?

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EigenLayer token EIGEN suspected of lack of supply transparency, is there a reason for EIGEN

The native token EIGEN of EigenLayer officially entered circulation this week and has faced volatility. After being listed on exchanges, the price of EIGEN surged at one point but later dropped by 22% from its peak. Since its issuance, the price of EIGEN has decreased from 4.53 to 3.47 USD. However, price fluctuations are not the only concern for investors; transparency has once again raised questions. This marks the second time that major blockchain media outlet CoinDesk has published negative comments about EigenLayer.

CoinDesk Exposé: EigenLayer allowed employees to receive ecosystem airdrops, making millions of dollars in “red envelope” profits.

EIGEN Token Supply Warning, Early Investors Hold Significant Chips

CoinDesk's review highlights concerns over the transparency of EIGEN token supply. With a total supply cap of 1.68 billion tokens and a circulating supply of 186 million, EigenLayer's fully diluted valuation (FDV) reaches $5.8 billion, with only the circulating tokens valued at around $650 million. Controversy surrounds the portion of locked tokens obtained by early investors in heavily discounted fundraising rounds.

These early investors participated in multiple fundraising rounds for EigenLayer, including a $14.4 million seed round, a $50 million Series A round, and a recent $100 million round completed in February. These investors can stake their locked tokens to earn rewards. Currently, a total of 130 million EIGEN tokens have been staked, with 70 million belonging to these early investors, raising concerns about their potential impact on token supply and market dynamics.

Comparison with Celestia's TIA Case

CoinDesk notes similarities between Eigen's token economics and a similar event involving the TIA token issuance of the Data Availability DA protocol Celestia. Early investors in TIA also staked their tokens to earn rewards, followed by selling, resulting in a 75% price drop since February. The EigenLayer community is concerned that similar selling behavior by early investors could negatively impact EIGEN's market performance.

Call for Transparent Staking Rules

EigenLayer investor TardFiWhale.eth points out new details in recent EigenLayer document updates, clarifying that "Eigen Labs investors can stake and receive rewards without locking," a detail not present in mid-September filings.

TardFiWhale.eth calls for transparency, suggesting that while allowing investors to stake locked EIGEN tokens for governance is reasonable, rewards from staking should also be locked until the end of a 12-month vesting period. EigenLayer's "Token Disclosures" page was only updated on September 30th.

Criticism of Reward Distribution Favoring "Whales"

EigenLayer allocated 86 million tokens to early users, including node operators and stakers. However, criticism arose as "whales," large token holders, received significantly more rewards than average investors. One notable example is Tron founder Justin Sun, who received an airdrop worth $8.75 million. According to blockchain data provider Arkham, almost all these tokens were deposited into HTX.

EigenLayer Swiftly Clarifies: Eigen Labs Investors Cannot Claim Rewards

According to CoinMarketCap, EIGEN's price began to decline one day after listing, falling below the opening level. As trading of the token continues, the market remains cautious about the potential selling behavior of early investors and its impact on token price and supply dynamics.

Following the news, EigenLayer announced:

  • Eigen Labs and Eigen Foundation prohibit their teams from staking for at least one year. This differs from several protocols where team staking is allowed from day one.
  • Eigen Labs investors are not eligible for Stakedrops based on EIGEN staking. They can only start accumulating rewards for EIGEN staking through future programmatic incentives.

While these points address the concerns raised, TardFiWhale.eth also questions why EigenLayer only made these issues apparent when complaints were voiced.