VCs secretly paid out rewards on “locked” EIGEN tokens

EigenLayer officials admitted today that they concealed the full truth about their massive insider allocations, particularly that they claimed much of the offering was not for sale (in “full lock”), despite allowing wealthy insiders to cash out bonuses be.

Back in April, EigenLayer became one of Ethereum's largest yield-generating protocols with $15.7 billion in assets. Fast forward to today, and the fully diluted value is down 60%.

EigenLayer admitted its underhanded practices in a delayed transparency disclosure.

Backed by $100 million from Andreessen Horowitz (a16z) and tens of millions from other Silicon Valley luminaries, EigenLayer claimed it could compete with Lidoby far the largest liquid restaking protocol on Ethereum.

Restating protocols are essentially leveraged debt programs that use the paltry 3.5% of staked Ether as collateral for derivatives that generate double-digit percentage returns.

EigenLayer executives said they would lock up much of the EIGEN token supply for at least a year. Specifically, EigenLayer published a white paper in April distributing an impressive 29.5% of the token supply to early investors and 25.5% to early contributors. Together, these two groups would hold more than 50% of all EIGEN.

In addition, it was promised that both groups would agree to trade restrictions for three years, including “a Full closure in the first yearfollowed by a linear unlock of 4% of their total allocation each month for the next two years.”

Read more: Ethereum Foundation condemned for EigenLayer conflicts of interest

EigenLayer’s shady “Full Lock” promise

Fast forward to September 30th – just days after EIGEN listed on exchanges – and users began to notice that these so-called “full-lock” allocations actually allowed investors and early insiders to cash out.

Just two weeks ago, Eigen did not announce that investors had completely blocked EIGEN could sell the staking bonuses obtained from these locked, staked tokens. Eigen then updated his documents at the very last minute.

“Basically they are earning dividends,” one user noted. “Locked tokens should not be used. That there is a scam,” said another, while one commented: “The public was unaware of this practice… leading to misleading conclusions about the token’s float and consequently investment decisions.”

In June, 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 Ether's price has declined over this time, accounting for some of these dollar losses, Lido's assets have roughly matched Ether's 25% price decline, while EigenLayer's 44% losses have far exceeded Ether's decline.

Do you have a tip? Send us an email or ProtonMail. For more in-depth news, follow us on X, Instagram, BlueskyAnd Google Newsor subscribe to our YouTube Channel.