The Rise of EigenLayer and Its Controversies

Transparent blockchains were once heralded as a solution to the opaque dealings of traditional finance, but the reality has unfolded differently. Instead, they have opened the door for a new class of insiders. Among the most notable projects within the expansive Ethereum ecosystem is EigenLayer, which positions itself as a “credibly neutral” platform aimed at fostering the development of secure blockchain applications while safeguarding them against theft and cyberattacks.

However, this claim of neutrality is marred by significant concerns. An investigation by CoinDesk revealed that employees at Eigen Labs, the organization behind EigenLayer, received millions of dollars in payouts from various projects that utilize its technology. This raises serious questions about potential conflicts of interest.

• One team informed CoinDesk that they distributed a portion of their new cryptocurrency tokens to each Eigen Labs employee as a gesture of gratitude, with individual allocations reaching a value of approximately $80,000.
• Another project reported feeling pressured to compensate Eigen Labs employees after receiving a list of wallet addresses, fearing that not doing so could jeopardize their relationship with a pivotal company in the blockchain space.

At the peak of the crypto market, Eigen Labs’ employees collectively claimed payouts valued at nearly $5 million, though this amount has since dwindled to just under $1 million amid a summer market slump. Many of the senior employees who participated in these token distributions now serve at the Eigen Foundation, a nonprofit organization that provides grants to projects leveraging EigenLayer’s technology.

Recognizing the potential for conflicts of interest, Eigen Labs and the Eigen Foundation implemented a ban on employee payouts earlier this year. They acknowledged that such practices could create an appearance of bias or preferential treatment.

Airdrop Assistance and Rapid Growth

Founded by Sreeram Kannan, an associate professor of electrical and computer engineering at the University of Washington, EigenLayer played a crucial role in igniting the latest crypto boom in 2023 through the introduction of “restaking”. This innovative blockchain security technology not only enhanced security but also presented a lucrative investment opportunity.

In a remarkably short time, the platform raised over $100 million in venture capital and accumulated $15 billion in user deposits, which are staggering figures even by blockchain standards. By early 2024, more than a dozen blockchain applications, including cloud computing services and data storage platforms, rushed to launch on EigenLayer. Additionally, “liquid restaking” services emerged, making it easier for users to deposit into EigenLayer.

During this surge, Eigen Labs facilitated access to airdrops for its employees, providing them with a list of their wallet addresses—akin to bank account details in the crypto world. Eigen Labs contends that it only shared this information upon request from the projects involved.

• “For projects interested in airdropping to Eigen Labs, we provided a list of addresses for all Eigen Labs employees,” the company stated in a response to CoinDesk.
• Alan Curtis, Eigen Labs’ chief commercial officer, further clarified that this list was only sent to teams that inquired about airdropping to Eigen Labs or its employees.

However, one project team claimed that Eigen Labs sent them the wallet list without any request on their part, creating a sense of obligation to reward Eigen Labs employees. Eigen Labs’ influence in the ecosystem made this request hard to ignore.

The company has emphasized its role in helping various teams coordinate airdrops by compiling wallet address lists and facilitating introductions within the restaking ecosystem. “This was (and is) very much aligned with our vision of a coordination engine where projects help each other, reward each other, and partner to build an EigenLayer ecosystem that is greater than the sum of its parts,” Eigen Labs stated, although they halted employee payouts in May.

Following the Money

CoinDesk undertook an analysis of the wallet list by matching Eigen Labs employees with their disclosed wallets and non-fungible token holdings on social media. A distinct pattern began to emerge. These wallets, alongside other “burner” addresses typically used for interactions with exchanges, were consistently receiving allocations from three specific airdrops: Ether.Fi, Renzo, and AltLayer.

Further verification of this reverse-engineered list was conducted with insiders familiar with the actual list maintained by Eigen Labs. According to CoinDesk’s findings:

• AltLayer distributed 46,512 ALT tokens to each Eigen Labs employee.
• Ether.Fi allocated 10,490.9 ETHFI per individual.
• Renzo provided 66,667 REZ tokens to each employee.

At their peak values, these airdrops were estimated to be worth approximately $30,000, $80,000, and $16,666, respectively. On-chain records indicate that Eigen Labs employees claimed a staggering total of 487,928 ETHFI (valued at a peak of $3.5 million), 1,733,342 REZ (valued at a peak of $433,300), and 1,539,563 ALT (valued at a peak of $1.02 million) from late January to mid-June 2024.

‘A Very Weird Crypto Thing’

Some industry insiders who spoke to CoinDesk characterized the airdrops to Eigen Labs employees as part of the typical culture in the crypto sector—a common practice that is often not openly acknowledged. “It’s a very weird crypto thing where, like, people just give out free money every once in a while,” remarked Mike Silagadze, CEO of Ether.Fi.

Silagadze clarified that Ether.Fi distributed tokens to employees of multiple companies, including Eigen Labs, as a form of appreciation. He emphasized that airdropping tokens to individuals rather than sending them to companies felt more personal. He stated that he requested a list of Eigen Labs employees and received a compilation of 50 wallet addresses without associated names. “They did specifically say that Sreeram did not participate in this,” Silagadze added, referring to Eigen Labs’ CEO Kannan.

However, others viewed the distribution of tokens to individual team members as improper. One crypto protocol founder, who wished to remain anonymous, described the payments to Eigen Labs employees as an “abuse of power.” They noted that while it is acceptable for one company to provide tokens to another for legitimate business purposes, distributing tokens to individuals crosses an unspoken boundary, even in the crypto realm.

This founder expressed concern that Eigen Labs’ significant influence within the restaking ecosystem could result in preferential treatment for projects that rewarded its employees. Eigen Labs frequently promotes various projects on its social media platforms and has organized exclusive networking events, such as a ski weekend in Colorado following this year’s ethDenver conference.

Furthermore, the Eigen Foundation controls 15% of all EIGEN tokens and allocates grants to projects within the EigenLayer ecosystem. CoinDesk, however, found no concrete evidence that Eigen Labs or the Eigen Foundation exercised its power to favor projects that had compensated its employees.

A Lack of Norms

Compared to publicly traded companies that are subject to government oversight, private crypto startups enjoy considerable latitude in disclosing critical information, such as token ownership percentages. When a crypto project releases tokens, it typically provides a rough breakdown of beneficiaries. However, there are no standardized requirements akin to those found in traditional stock markets, leaving investors with incomplete or potentially misleading information about digital assets.

“Token holders are functionally the public [equity] market here,” noted Christos Makridis, who is conducting research on airdrops as a digital fellow at Stanford University’s Digital Economy Lab. He pointed out that stock markets have established reporting requirements designed to protect investors, while the crypto landscape lacks such formal regulations.

AltLayer was the only project that proactively disclosed its distribution to Eigen Labs employees in a January blog post. AltLayer’s Head of Communications, Aparna Narayanan, stated that the allocations were a “token of appreciation.” On the other hand, Renzo and Ether.fi noted in their tokenomics webpages that some of their airdrops were designated for ecosystem “partners,” yet neither explicitly mentioned Eigen Labs employees.

Kratik Lodha, a representative of the RestakeX Foundation, which oversaw Renzo’s airdrop, confirmed there was an allocation for ecosystem partners but noted that no one from EigenLayer had solicited this. When CoinDesk inquired whether EigenLayer had proactively sent Renzo an unsolicited list of blockchain addresses before its April airdrop—an action that some might not view as a direct solicitation—Lodha declined to comment.

Clean-Up Act

In the wake of a separate controversy that garnered significant attention in May involving the Ethereum Foundation, Eigen Labs moved to eliminate its airdrop policy. The Foundation disclosed that two of its lead researchers, Justin Drake and Dankrad Feist, had accepted paid advisory roles with EigenLayer, prompting community concerns that EigenLayer was attempting to influence Ethereum’s development priorities.

In response, both researchers pledged to redistribute their earnings to projects within the Ethereum community, leading the Ethereum Foundation to revise its conflict-of-interest policies to prevent future occurrences. Eigen Labs subsequently informed CoinDesk that it ceased allowing projects within the ecosystem to airdrop tokens to its employees in May.

Additionally, the company implemented a conflict-of-interest policy that explicitly prohibits employees from influencing any transactions related to the organization for personal benefit. Eigen Labs also introduced measures to prevent team members from selling any airdrops received while possessing material non-public information, including standardized blackout periods following airdrops.

The company asserted that these steps were taken to enhance trust and transparency within the ecosystem. The Eigen Foundation further restricted employees from individually claiming airdrops in a policy update published on GitHub on June 3, citing concerns about conflicts of interest or the appearance thereof. Despite these changes, wallets included in Eigen Labs’ address list continued to claim airdrops through mid-June, and Eigen Labs and the Eigen Foundation stated that employees who had already claimed airdrops would not be required to return their tokens.