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EigenLayer Airdrop Has Highlighted the Problems in the Crypto Marketby@dariavolkova
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1,548 reads

EigenLayer Airdrop Has Highlighted the Problems in the Crypto Market

by Daria VolkovaMay 4th, 2024
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Eigen Layer airdrop illustrates a mismatch in users' expectations and market conditions. Why is the community angry with the biggest Ethereum restaking platform
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Hi everyone, Daria Strategy here 🙌🏻

I’m a Growth Marketer, Brand Strategist and Communications expert working with blockchain and crypto projects. I create additional value and build brand awareness of the Web3 companies among users, developers, and VC funds.


Recently, the crypto market exploded with news about the airdrop of EigenLayer, the most hyped Ethereum restaking platform. The conditions for receiving this drop caused an even greater explosion of emotions, discussions, and even hate.


The project offers a platform for those who want to restake rather than the classic staking process that attracts regulators' attention. The emergence of EigenLayer and LRT restaking protocols increased ETH's share of staking to 26% of the total supply. According to DeFi Lama, EigenLayer is TVL's second-largest protocol on Ethereum after Lido, at $14.2 billion:

01.05.2024, https://defillama.com


An airdrop from EigenLayer canonically illustrates community expectations and market conditions. In this article, I explain what happened and what problems this case highlights in the crypto market. I also took a comment from my colleague, a product marketer who is now introducing a similar product to the market. Let’s figure it out together!


A short overview of the Eigen Layer Airdrop

Over the last year, EigenLayer has become super popular because of the rethinking of Ethereum restaking and the big names of venture funds that have invested in this project (a16z crypto, Ethereal Ventures, Polychain Capital, Coinbase Ventures, etc.).


The journalists of Blockworks recommend calling the EIGEN token generation event a “stake drop,” not “an airdrop. “ EIGEN can only be staked with EigenLabs’ proof-of-concept/proof-of-value data availability service EigenDA, at least in the beginning, until other apps building with EigenLayer integrate the token into their own platforms.


According to tokenomics, 45% of the 1.67 billion coins will go to the community, and a third will go to the airdrop for staking participants. The main complaint is related to the terms of holding the coins—after the $EIGEN stamp, they cannot be moved, and the monthly split will be only 5%.

https://x.com/coinmamba/status/1785004852944257255


The platform team decided not to allow users from the USA, Canada, India, China, and several other countries to distribute and also warned about blocking for using VPN services. There were no geoblocks for restaking Ethereum before, so this situation angered many users who held their ETH in EigenLayer.


https://x.com/Airdrops_one/status/1785108017744126310


The negative reaction to the actions of the project team caused a surge in asset withdrawals from the restaking service. According to Dune, more than 7,000 withdrawal requests were initiated.

https://dune.com/queries/3636372/6124105


Here is a funny but apt video based on a famous meme I found on Twitter. In general, it describes pretty well the situation around the airdrop and the reasons for the disappointment of the community. The link to the post with this video is here.

https://x.com/printer_brrr/status/1785051533828096144



What does this EigenLayer Airdrop show us?

The EigenLayer case highlights several important points and issues that we could observe that have been in the market for a long time and which all participants try to ignore.


1️⃣ The successful Aptos airdrop in late 2022 ushered in the "fat retrodrops" era and raised farmer expectations. People imitate activities in the networks, hoping to wake up one morning and see Lambo from the window. @RyanSAdams from Bankless described this point very well:

https://x.com/RyanSAdams/status/1785312630908866583



2️⃣ Many projects started betting on the token and using it as a marketing and reputation tool. I talked to the founders, convinced that only a drop would help them draw attention to the project. This is naive and short-sighted. Paying users for using the product is unnatural because instead of healthy competition and customer loyalty, it creates greed and a "gold rush.”



3️⃣ The market does not have sufficient users. Projects encourage activity by hinting at rewards for those who will boost the activity. However, it is obvious that projects can but are not obliged to pay rewards to users for their activity on the network. This sends only one message to the average crypto user: **Your active participation, in the end, can mean very little.


4️⃣ In the world beyond Web3, businesses compete with each other through better technology, more attractive design, clear communication, and other factors that affect market position. Traditional businesses offer cashback and discounts at the product's launch, but no one pays tens of thousands of people $1000+ for using shampoo or buying a car.

5️⃣ Blockchain projects desperately need users interested in technologies, not drops! This need highlights the significant issues with UX and product value communication. It must be a user-oriented approach with a consistent product and marketing vision. Some Web3 founders started to take this point, but not the majority. The desire to make more complex technological products to show them off in front of fellow technicians takes precedence over a rational approach and customer orientation.


What’s the future of restaking in the context of the EigenLayer case?

I asked Denis Igin, the Product Marketer at Nektar, about the case of EigenLayer’s airdrop. Nektar is a multilayered restaking network implementing a comprehensive incentives system for its participants, so Denis is well-versed with the current state of the restaking market and able to share his vision on this issue.

Denis Igin, Nektar Network


- What will be further after such a disappointment of the community? Will we see the withdrawal of funds from the restaking platforms?


Denis: It’s hard to say about EigenLayer, but restaking as a concept and approach changes everything.


For example, it enables the composability of solutions sourcing trust from the same set of validators, leading to technological advances such as native interoperability, etc.


After mercenary capital outflow, next comes proving economics that everyone expects from the original design: additional rewards for restakers.


Demand from AVSs might not be high at first, as with everything novel, but eventually, repurposing Ethereum security will have a disruptive and long-lasting impact comparable to decoupling execution by rollups.


- Is the drop a panacea for product promotion?

Denis: When used wisely, airdrops are a great way to gather relevant community information about the project. Gamification works too, e.g. Nektar recently launched a points system.


- What conclusions did you draw following the case of the EigenLayer airdrop?

Denis: The main lesson is that larger projects may fail in many ways, and this is likely due to the experimental nature of the restaking technology. As a community, we should not repeat the mistake of creating an outsized stakeholder leader. There’s room for more restaking players, and Nektar looks like a viable alternative to EL due to its integrated DVT, providing better resiliency and decentralization.


Conclusion

Many people support this situation with airdrops because it brings (actually, not always) high income in a short-term perspective. Another issue is that high-tech projects are not ready to be more open to a broader audience; they only create technologies for developers, limiting the market's growth.


I can't imagine the industry's organic growth if the blockchain/crypto projects start fighting over who will give away more crypto in fear that their activity on the network or the number of followers will fall due to inflated expectations.


I urge all members of the Web3 industry pay more attention to the value of the project and build a long-term relationships between the product and the users. The hype passes quickly, and what remains in return, loyalty or disappointment, depends on the ability of the founders to play the long game.




Read my previous articles about making blockchain as popular as AI and launching a Web3 Project in 2024.

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