Author: Nancy, PANews
Shortly after the "airdrop bribery" incident, the top Restaking project EigenLayer encountered a crisis of trust due to staking rewards rules and false lock-up scandals.
Unrestricted staking rewards for investors are blamed for the decline in coin prices
As a leading project with a financing scale of over 100 million and tens of billions of funds, the launch of EigenLayer's token has naturally attracted much attention. Shortly after the second quarter EIGEN reward application was opened, EigenLayer's native token EIGEN officially landed on major trading platforms on October 1, but the rise after the launch did not last long, which caused dissatisfaction among investors.
Coindesk reported that many community members attributed the problem to the fact that some of the locked EIGEN tokens belonged to early investors who bought them in a financing round at a significant discount, and they received rewards through staking, which brought great selling pressure.
On October 2, EigenLayer investor TardFiWhale.eth posted on X that many discussions about EIGEN's circulating supply are inaccurate. There are now 95 million EIGEN staked, and many people mistakenly believe that these are all claimed tokens, but in fact a considerable portion of them are locked tokens from early investors. This is similar to Celestia's practice, where early investors staked their locked tokens and continued to sell them for rewards.
Previously, @gtx360ti disclosed on the X platform that Polychain invested about $20 million in Celestia's Series A and Series B financing. Now, not a single token has been unlocked, but more than $82 million worth of TIA has been sold through staking rewards, achieving a return on investment of more than 4 times.
According to TardFiWhale.eth, EigenLayer recently updated its documentation to allow this practice, but this information did not exist two weeks ago. EigenLayer's latest documentation shows that Eigen Labs investors are not restricted from staking, and staking rewards are not subject to lock-up restrictions.
According to Dune data, as of October 8, the total amount of EIGEN pledged exceeded 240 million, of which investors pledged more than 180 million and users pledged 5.727 million. According to statistics, the scale of EIGEN pledged by investors alone accounts for 76.6% of the total.
Not only that, DeFi researcher Ignas also recently pointed out that the number of EIGEN currently in stake is more than the number of EIGEN in circulation, with 242 million staked and 186 million in circulation (CMC and Coingecko data on October 7). This is because EigenLayer allows investor tokens in a "locked" state to be staked. This is a common problem in the industry, and TIA seems to have a similar problem, which dilutes the staking rewards available to real users and limits the token's value-added potential, because the lower APY is not enough to attract people to buy these tokens from the market.
"Transparency will enable us to have a more honest and open discussion about these issues. I personally believe that allowing investors who lock up EIGEN to stake makes sense from a governance perspective given the complexity and goals of Eigenlayer, but I believe that the rewards earned from staking should be locked until the cliff is reached at the end of the 12-month vesting period." TardFiWhale.eth said it made this proposal to improve industry standards and end shady "backstage deals."
In response, Eigen Labs and the Eigen Foundation responded and released information disclosure on the handling of investor staking rewards. The key points include that the total EIGEN rewards provided to EIGEN stakers each year are limited to 1% of the initial total supply; investors can stake EIGEN and non-EIGEN assets on the EigenLayer, and the investor contract requires that investors be allowed to stake EIGEN, and any rewards must be unlocked; all EIGEN stakers can receive a maximum of 1% of the initial total supply of EIGEN each year, which can be claimed weekly and takes a full year to be released linearly. This 1% includes all EIGEN stakers, including investors; Eigen Labs and the Eigen Foundation both prohibit their teams from participating for at least one year; investors are not eligible for Stakedrops based on EIGEN staking.
The transparency of token lock-up behind the hacking incident is questionable
However, a coin theft incident has pushed EigenLayer to the forefront.
On October 4, according to Lookonchain monitoring, a wallet sold 1.67 million EIGEN at a price of US$3.3 through MetaMask. It is reported that these EIGEN tokens were received from the EigenLayer team wallet.
This on-chain operation also caused controversy in the community. EigenLayer officials responded that an isolated incident occurred this morning, and an investor's email about transferring the vested tokens to the escrow address was hijacked by hackers. The hacker replaced the specific address, resulting in 1,673,645 EIGEN tokens being mistakenly transferred to the hacker's address. The hacker has sold these stolen EIGEN tokens through decentralized trading platforms and transferred the stablecoins to centralized exchanges. The platform is in contact with these platforms and law enforcement agencies, and some funds have been frozen.
After the attack, some community members also participated in the "rescue". According to the analysis of Yu Xian, the founder of the security agency SlowMist, the attacker may have planned for a long time. The attacker's address first received 1 EIGEN, and after about 26 hours, it received 1673644 EIGEN, all from 3/5 multi-signature addresses. Then, more than an hour later, various coin washing began. Gas came from ChangeNow, and the illegally obtained EIGEN was mainly exchanged for USDC/USDT, and mainly washed through platforms such as HitBTC. According to the official statement, the reason for the attacker's success was "email hacking". It is estimated that in the content of the email, the wallet address that should have been sent to receive EIGEN was replaced with the attacker's address, causing the project party to send EIGEN to the attacker's address.
Although there are many crypto security incidents, EigenLayer has exposed the problem of token unlocking for investors. In fact, according to the token economics disclosed in the EigenLayer document, the token allocation ratio for investors is 29.5%, but it must remain fully locked for 1 year from the date of the first transfer of the token to the community. After one year, 4% will be unlocked every month, which means that the EIGEN held by investors will not be fully unlocked until 3 years later.
“Why can this investor obtain such a large number of tokens that do not need to be locked at one time? Is this compliant? In addition, from the official address of Eigenlayer, we can see that in addition to this ‘investor’, corresponding token distribution behaviors were also carried out to dozens of addresses before this. When I clicked on each address, I saw at least millions of Eigenlayer tokens. So are these addresses also investor addresses?” Independent researcher Jason Chen questioned in a post.
@yuexiaoyu111 said that the hacker’s successful attack exposed the existence of the project’s insider trading, and it was the existence of the insider trading that gave the hacker an opportunity to take advantage of it, and they were mutually causal. I didn’t expect that a superstar project with a luxurious background and a project listed on the industry’s top exchanges would still have such non-disclosure, opaque, and under-the-table transactions. It seems that the Crypto industry is still too far away from the compliance level of the traditional financial world and lacks strong supervision.
“These VC projects are essentially stocks issued by companies, and there is no regulatory agency. Even if 100% of them are in circulation, they can still modify the token economics and issue more tokens out of thin air, so it’s no wonder that people call them air coins. Who will become the regulator of institutional implementation of token economics? If this problem is not solved, VC coins will be criticized as a cancer and will always plague cryptocurrencies.” @Joensmoon said in the community.
In addition, regarding the transparency and rationality of the distribution of industry tokens, Jason Chen also pointed out that "there are currently many problems with the distribution of tokens in the industry. If this continues, VCs will really lose their jobs. In fact, I am not opposed to the opening team investors selling some, and even think that the rule that the investor team locks up for one year is actually unreasonable. It is a "hypocritical" deformed product, and it will inevitably lead to more outrageous things. Why do many project parties masturbate themselves, or secretly get some chips in other ways? It is because the one-year lockup is anti-human. If you want to distribute chips, just say it openly. As long as it is reasonable, everyone can understand it. But the problem now is that it is one thing on the surface and another behind the scenes, which directly breaks everyone's trust. If other projects that would have abided by the rules see Eigenlayer How do they feel if such a "top student" with thick eyebrows and big eyes is playing dirty? They will inevitably follow suit and imitate, and finally the bad money drives out the good money and everyone turns the table and has no food to eat. So the problem now is not who runs first and who runs later, but that the rules of running are not clear, and the clear rules are not followed. In addition, there are still huge problems with the distribution of tokens in the entire industry. Unlocking should be linked to more dimensions such as the project's business and coin price, and there should be a powerful and flexible system for configuration, which can lead the project party to really work hard and eliminate the inferior projects that treat the crypto as an ATM. "
Affected by multiple turmoil, the price of EIGEN continued to decline within about a week of its launch. CoinGecko data shows that as of October 8, the price of EIGEN has fallen 19% from its high point after launch, and its circulating market value has fallen back to nearly US$670 million.
