EigenLayer Admits to Withholding the Full Truth About Its Massive Insider Allocations

Back in April, EigenLayer became one of Ethereum's largest yield-boosting protocols with $15.7 billion in assets. Fast-forward to today, and its fully diluted value has crashed 60%.

The leaders of EigenLayer have admitted to withholding the full truth about its massive insider allocations.

Back in April, they claimed that a majority of its token supply would be locked up for at least a year. However, it turns out that wealthy insiders were being allowed to cash out rewards.

EigenLayer became one of Ethereum’s largest yield-boosting protocols with $15.7 billion in assets. Now, its fully diluted value has crashed 60%.

EigenLayer admitted its practices in a belated transparency disclosure.

Eigen Labs and Eigen Foundation posted disclosures on the treatment of investor staking rewards, which we summarize in this tweet, responding to community questions.– Eigen Labs disclosure: https://t.co/SYspTxM3Nd…

This story is developing. Refresh for updates.

EigenLayer, a new liquid restaking protocol, claimed it could compete with Lido, by far the largest protocol of its kind on Ethereum.

Restaking protocols use staked ether’s paltry 3.5% to back derivatives that loop up to double-digit percent yields. Lido currently dominates this market with over $20 billion in ether, while competitors like Rocket Pool and Frax have struggled to gain any meaningful market share.

In April, EigenLayer said it had attracted $100 million from Andreessen Horowitz and tens of millions more from other Silicon Valley luminaries.

EigenLayer's leaders claimed that they would lock a majority of the EIGEN token supply for at least a year.

Specifically, EigenLayer published a whitepaper allocating a stunning 29.5% of the token supply to early investors plus 25.5% to early contributors. It said that both of these groups agreed to three years of trading restrictions, including “a full lock in year one, followed by a linear unlock of 4% of their total allocation each month over the next two years.”

However, users noticed that these allocations were actually allowing investors and early insiders to cash out.

As recently as two weeks ago, Eigen did not disclose that investors holding ‘full lock’ EIGEN could sell the staking rewards received from those locked, staked tokens. Eigen then updated its docs at the very last minute.

“It shouldn’t be announced after someone calls you out. This should’ve been announced long ago,” said one user.

“Basically they’re earning dividends,” noted another, while one commented, “The public was unaware of this practice… leading to misleading conclusions about the token’s float and, consequently, investment decisions.”

By September 30, EigenLayer had attracted $20 billion in assets, making it the second-largest liquid restaking protocol after Lido's then-$35 billion. Today, it is down 44% to $11.2 billion.

Although the price of ether has declined over this time and accounts for some of these dollar losses, Lido’s assets have roughly tracked the 25% price decline of ether whereas EigenLayer’s 44% losses have far outpaced ether’s decline.