Empire Newsletter: What's wrong with EigenLayer's airdrop

Stake, not steak

Don’t call it an airdrop.

EigenLayer’s finally-confirmed token generation event is a “stakedrop” — a very different concept.

Anyone who had staked with Ethereum restaking platform EigenLayer before the March 15 snapshot can receive a linear distribution of EIGEN tokens, scaled to the points they’ve received, between May and September this year.

What makes EigenLayer’s airdrop a stakedrop is that those EIGEN tokens can’t be transferred, which means they can’t be sold or traded until a yet-to-be-determined date.

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.

That’s one way to get around the day-one dumping problem often associated with token airdrops: hard-coded diamond hands, with a whiff of additional rewards.

There was about 3.14 million ETH ($12.2 billion) in EigenLayer on the snapshot date — now there’s 4.86 million ETH ($15.8 billion). By raw ETH count, EigenLayer’s total stake has swelled by about half in those six weeks, and is easily the second-largest DeFi app behind liquid staking platform Lido.

EigenLayer’s growth has been largely attributed to the implicit promise of an airdrop scaled to its points program.

There are three main points of contention over the EigenLayer stakedrop:

Linear distributions skew unfairly toward well-capitalized staking whales (the rich get richer).
US users can’t claim EIGEN despite EigenLayer accepting their stakes.
Short vesting schedules that potentially start at distribution, rather than activation of the ability to transfer.

There’s some truth to all those concerns.

Yes, it sucks that US users can’t claim an airdrop without deliberately avoiding geoblocks with a VPN. It’s especially ironic given that EigenLabs itself is headquartered in Seattle, and is backed by a bevy of US-based investors, but there were no geoblocks put in place at the app-layer to discourage American stakers.

The Cayman Islands-registered Eigen Foundation, however, is in charge of all token matters. The foundation says no dice for US residents, alongside a number of other jurisdictions — which, in any case, is par for the course in crypto these days.

As for the vesting schedules that could begin at distribution, it does feel grimy that insiders and early investors may start counting down toward a liquidity event (read: selling on exchanges) before users know for sure when they can sell their own stash. Hopefully cooler heads will prevail, and the Foundation will clarify its policy.

By far the most valid concern is the linear distribution schedule, which runs in contrast to the Jito-like airdrops that reward the little guy.

Taking the current EigenLayer points distribution as a proxy for the actual snapshot, EigenLayer has 117,000 unique depositors and 36% have under 500 points, altogether worth 0.2% of the supply, while the top 2,227 depositors (2% of the total) have gathered almost 90% of points supply.

So, napkin math suggests the top ~2% of EigenLayer stakers will receive ~90% of the EIGEN stakedrop, which has been earmarked for 15% of the total supply at launch.

This sends only one message to the average crypto user: Your active participation, in the end, can mean very little.

— David Canellis

Data Center

EigenLayer’s total ETH locked fell 5% overnight, equal to about 150,000 ETH ($453.2 million).
Ether inflation continues, now at more than 10,200 ETH ($31 million) over the past week. Extrapolated over the next year, that’s a 0.45% inflation rate.
Daily bitcoin fees are at three-week lows as Runes interest dies down.
Over the past two days, 70% of Bitcoin transactions were BTC transfers, with Runes making up most of the rest.
Worldcoin has paid out $504 million in token incentives over the past 90 days, ranked fourth behind Bitcoin, Ethereum and Solana.

Judgment day

After some delay, CZ’s big day has finally arrived.

The Binance founder is scheduled to be sentenced in federal court in Washington state at 12 pm ET (9 am PT) this morning.

We’re not one to place bets, but if we had to, we’d say CZ is probably going to spend some time behind bars. It’s a high profile case, so he’ll receive credit for cooperating and pleading guilty, but an example still has to be made.

CZ entered into a guilty plea agreement in November, admitting he failed to maintain an effective anti-money laundering program at Binance — a violation of the Bank Secrecy Act.

The government says CZ should face three years in prison — double the high end of the federal guidelines range. The defense, unsurprisingly, is going for the lowest end of the recommendations: five months probation, ideally with conditions that allow him to return to his home in the UAE.

Prosecutors say the “gravity” of the crimes, plus CZ’s “willful” involvement, means a stricter punishment is in order. Prosecutors also highlighted national security threats and vulnerabilities, which they say CZ enabled through his negligence.

The defense argues CZ faces unfairly harsh conditions if he is incarcerated. Given that he is not a US citizen, he’s ineligible for a minimum-security facility, his team wrote. Plus, he cooperated with the US government.

CZ’s team also hired a private security company to create a plan for home confinement in the UAE should the judge decide house arrest is in order. Again, we aren’t one to place bets, but this seems like a serious long shot. We don’t even want to know what the defense paid this company.

The hearing should be fairly quick. The government and defense will present their sentencing recommendations to the judge, which were filed last week. Victims and advocates will have a chance to address the court, as will CZ.

We expect CZ will take the opportunity to speak. For his sake, we hope CZ is more eloquent and apologetic than Sam Bankman-Fried, FTX’s founder, was at his own sentencing last month.

CZ is already miles ahead of his former frenemy SBF, though. Binance is still up and running, and Bloomberg says he’s worth $43 billion. The $50 million fine CZ has to hand over is a drop in the bucket.

— Casey Wagner

Sell, sell, sell!

Executives from a few different crypto companies are raking in the dough this year.

Take Michael Saylor. If you’ve been here a while, you know we’ve already discussed his stock sales once — but the MicroStrategy co-founder made roughly $400 million.

MSTR, trading around $1,200 a share, is up nearly 300% year to date as it benefits from the bitcoin bull run we’ve seen so far this year.

Saylor’s sales are a unique case of, dare I say, luck? Last year, the company disclosed that the executive would unload 5,000 shares a day between January and April.

Read more: Let Michael Saylor cook

Unless someone at MicroStrategy has a crystal ball, Saylor’s sales came at one of the most beneficial times in crypto. And he still has a “significant ownership stake,” according to CFO Andrew Kang.

While no one at Coinbase has managed to notch nearly $400 million in stock sales, the executive team has made $441 million in net insider stock sales year to date. To put that into perspective, the team notched net sales of $175 million in 2023.

CFO Alesia Haas has sold roughly 90,000 shares for an average of $233 a share. COIN trades around $216 currently, with a 52-week high of $283. It’s in a similar boat as MicroStrategy, up over 325% year to date.

CEO Brian Armstrong comes out on top of the sales though, making $152 million so far. He finished selling 2% of his stake in the company earlier this year. Like Saylor, the sales were disclosed ahead of time.

These stock sales aren’t unusual when looking at the sales themselves, as executives would want to profit when their stocks are making such dramatic gains.

Saylor’s profits are some of the most interesting, simply because — as Kang said on the earnings call Monday evening — the sales were “programmatic” and Saylor actually had to execute the sales ahead of an options expiration.

Now one has to wonder how much bitcoin Saylor plans to buy with those funds.

— Katherine Ross

The Works

MicroStrategy bought 122 bitcoin for $7.8 million in April, Michael Saylor says.
Polymarket traders think former Binance CEO CZ will be sentenced to less than a year in prison.
The spot bitcoin and ether ETFs officially debuted in Hong Kong overnight but the reception was “lukewarm,” Reuters reports.
Avalanche integrated with Stripe’s brand-new crypto onramp.
ICYMI: The SEC has been investigating ETH for over a year, according to an unredacted filing from Consensys.

The Morning Riff

One foot in, one foot out.

So it seems to go in the world of Web 2.5, a concept I don’t 100% grok. But it strikes me as one of those phrases bandied about to justify, well, whatever business model is being pursued by these transitory prognosticators.

Some refer to Web 2.5 as the “bridge” between Web2 and Web3 — yes, these varying editions of the internet can be a bit dizzying — though, the ruder interpretation might be that Web 2.5 denizens aren’t ready for the full plunge, so to speak.

I think this is misguided. Bitcoin’s OG pitch was to be one’s own bank — that is, shedding the perceived shackles of the financial system.

Maybe those Web 2.5 folks ought to do the same. Pinch the nose, climb the decentralization diving board and jump. It might be a bit easier to follow exactly what you stand for and what you’re trying to accomplish if you do.

— Michael McSweeney

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