coindesk.com
Eigen Labs, the developer of "restaking" juggernaut EigenLayer, distributed a list of employee wallet addresses to ecosystem projects preparing to launch crypto tokens.
Some teams said they asked Eigen Labs for the list, but one said it didn't and felt pressured by the company to send its employees tokens.
Experts and insiders say the payouts – worth nearly $5 million at peak prices – raise conflict-of-interest concerns.
Eigen Labs and the nonprofit Eigen Foundation have since banned such payouts to employees.
Transparent blockchains were pitched as an antidote to Wall Street-style backroom deals. They've instead paved the way for a new class of insiders.
Many regard EigenLayer as one of the most promising projects in the sprawling Ethereum blockchain ecosystem. The app provides what it calls a "credibly neutral" platform for building blockchain apps and keeping them safe from theft and cyberattacks.
Such neutrality, however, comes with a major caveat: Employees at Eigen Labs, the company behind EigenLayer, have accepted millions of dollars in payouts from some of the other projects that rely on its technology, raising the question of potential conflicts of interest, a CoinDesk investigation found.
One team told CoinDesk that it sent each Eigen Labs employee a portion of its new cryptocurrency as a “thank you.” Each employee’s allocation was eventually worth $80,000.
Another team said it was sent a list of wallet addresses by Eigen Labs and felt pressured to pay up – or risk imperiling the relationship with a company that could make or break its business.
Eigen Labs employees ultimately claimed payouts worth nearly $5 million at peak values – just under $1 million at press time – amid the crypto market's summer slump. Some of the highest-ranking employees who claimed tokens now work at the Eigen Foundation, a non-profit that awards grants to projects that use EigenLayer's technology.
Eigen Labs and the Eigen Foundation quietly banned payouts to their employees this year, acknowledging the practice might create conflicts of interest, or at least the impression of them.
"Eigen Labs and its Foundation are stated to be 'credibly neutral,' implying a responsibility to avoid any appearance of bias or preferential treatment," said Cessiah Lopez, a crypto research fellow at the nonprofit VentureESG and affiliate researcher at the Minderoo Centre for Technology & Democracy at the University of Cambridge. "Actions that could be interpreted as contradicting this principle might raise concerns, even if they were undertaken without any malicious intent."
Airdrop assistance
Founded by Sreeram Kannan, an associate professor of electrical and computer engineering at the University of Washington, EigenLayer helped spark crypto’s most recent boom cycle in 2023 when it pioneered "restaking,” a new kind of blockchain security technology that doubled as a lucrative investment opportunity.
The platform raised more than $100 million in venture funding and racked up $15 billion worth of user deposits in under a year – massive sums even in the big-money world of blockchain.
Read more: Restaking 101: What Are Restaking, Liquid Restaking and EigenLayer?More than a dozen blockchain apps rushed to launch on EigenLayer in early 2024 – things like cloud compute services and data storage platforms. Also joining the wave were "liquid restaking" services that made depositing into EigenLayer more user-friendly.
The new apps chewed up millions of dollars in venture funding and spat out cryptocurrencies with sometimes billion-dollar valuations. They held airdrops to distribute their new tokens.
As this was happening, Eigen Labs was helping its employees get access to the airdrops. It sent around a list of their wallet addresses – crypto's answer to the bank account.
The company insists it did so only when asked by those projects.
"For projects interested in airdropping to Eigen Labs, we provided a list of addresses for all Eigen Labs employees," the company said in a statement to CoinDesk.
Eigen Labs only sent the list "to teams that had reached out about airdropping to Eigen Labs or its employees," reiterated Alan Curtis, the company's chief commercial officer.
But one team told CoinDesk that Eigen Labs sent it the list even though it had not asked for it.
Eigen Labs requested that its employees be rewarded with airdrops, said the developer of this project, who spoke on condition of anonymity for fear of retribution. The request was difficult to ignore given Eigen Labs' influence, the person said.
Eigen Labs said it helped many teams coordinate sending airdrops to others in the restaking ecosystem by amassing wallet address lists and making introductions.
"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," the company said in a statement, though it banned the payouts to its own employees in May.
Following the money
CoinDesk reverse-engineered the wallet list by compiling a list of all Eigen Labs employees and pairing them with wallets and non-fungible token-holdings they had disclosed on social media.
A pattern began to emerge.
These wallets – and other "burner" addresses that often only interacted with crypto exchanges – were collecting the same number of tokens from three respective airdrops: Ether.Fi, Renzo and AltLayer.
CoinDesk later verified a majority sample of this reverse-engineered list with insiders familiar with the actual Eigen Labs list.
According to CoinDesk's analysis, AltLayer allocated 46,512 ALT to each Eigen Labs employee. Ether.Fi followed with 10,490.9 ETHFI per person. Then came Renzo, at 66,667 REZ apiece. At peak prices these three airdrops were worth around $30,000, $80,000, and $16,666, respectively.
On-chain records indicate Eigen Labs employees claimed a total of 487,928 ETHFI (peak value $3.5 million), 1,733,342 REZ (peak $433,300), and 1,539,563 ALT (peak $1.02 million) between late January and mid-June 2024.
'A very weird crypto thing'
Some industry sources who spoke to CoinDesk said the airdrops to Eigen Labs employees amounted to business as usual in crypto: a common, albeit seldom openly discussed perk of working for a well-connected blockchain startup.
"It's a very weird crypto thing where, like, people just give out free money every once in a while," said Mike Silagadze, CEO of Ether.Fi.
Ether.Fi airdropped tokens to employees of many companies, including Eigen Labs, as a "thank you," he said.
Silagadze said Ether.Fi preferred to airdrop tokens to individuals at those companies "because it's more personal" than sending them to the firms. He said he asked Eigen Labs for a list of its employees so they could get airdrops. It sent him a list of 50 wallet addresses, no names.
"They did specifically say that Sreeram did not participate in this," Silagadze said, referring to Kannan, Eigen Labs' CEO. "Given the size of the team it was probably everyone else."
(Bullish, the parent company of CoinDesk, is an investor in Ether.fi)
Others said the payments by various teams to Eigen Labs employees were improper. One crypto protocol founder who was aware of the Eigen Labs payments, but spoke on the condition of anonymity, said they amounted to an “abuse of power.”
“If a company gives another company tokens for business reasons, that’s one thing, but giving tokens to individual team members is completely out of the norm — even in crypto,” said the founder.
In this person's view, Eigen Labs' outsized influence in the restaking world means it can selectively promote or privilege projects that pay tokens to team members.
Eigen Labs frequently highlights projects on its social media channels and has hosted invitation-only networking events – like a Colorado ski weekend after this year's ethDenver conference – for ecosystem founders.
The Eigen Foundation controls 15% of all EIGEN tokens and rewards grants to projects in the EigenLayer ecosystem.
CoinDesk found no evidence that Eigen Labs or Eigen Foundation used its power to privilege projects that paid tokens to its employees.
A lack of norms
Compared to government-regulated public companies, private crypto startups have a lot of leeway in deciding how they disclose critical information such as token ownership percentages.
When a crypto project issues tokens, it often publishes a rough breakdown of beneficiaries. No one's requiring there to be a pie chart; the crypto industry lacks consistent reporting standards, leaving investors with incomplete or even misleading information about digital assets.
"Token holders are functionally the public [equity] market here," said Christos Makridis, who is conducting research on airdrops as a digital fellow at Stanford University's Digital Economy Lab. In stock markets "there are reporting requirements" designed to keep investors safe, he pointed out. In crypto, none of this is codified.
AltLayer was the only project to proactively disclose its distribution to the Eigen Labs team in a January blog post. AltLayer Head of Communications Aparna Narayanan told CoinDesk the allocations were a "token of appreciation.”
By contrast, Renzo and Ether.fi disclosed in their tokenomics web pages that some of their airdrops were reserved for ecosystem “partners.” Neither mentioned Eigen Labs employees.
Kratik Lodha, an authorized representative for the RestakeX Foundation, which conducted Renzo's airdrop, said "there was an allocation for ecosystem partners which was not solicited by anyone from EigenLayer."
CoinDesk subsequently asked Lodha if EigenLayer proactively sent an unsolicited list of blockchain addresses to Renzo ahead of its airdrop in April (which some might not consider an explicit solicitation). He refused to answer.
Clean-up act
Eigen Labs scrapped its airdrop policy in the wake of another controversy that lit up crypto headlines in May involving the Ethereum Foundation, the Swiss non-profit supporting the Ethereum blockchain.
The Foundation revealed two of its lead researchers, Justin Drake and Dankrad Feist, had accepted paid advisory roles with another project building on Ethereum: EigenLayer.
Community members voiced concern on X (formerly Twitter) that EigenLayer was attempting to sway Ethereum’s development roadmap in its favor. Feist and Drake ultimately pledged to redistribute their paydays to Ethereum community projects, and the Ethereum Foundation revised its conflict-of-interest policies to prevent future incidents.
Eigen Labs told CoinDesk that in May it stopped allowing projects in the ecosystem to airdrop tokens to its employees.
The company also said it introduced a conflict-of-interest policy that "explicitly prevented any employees from influencing any transactions related to the company for personal gain."
Eigen Labs also instituted "a prohibition by team members on selling any airdrops received while in possession of material non-public information, including standardized blackout periods after airdrops."
The company said it took these steps "to ensure trust and transparency."
The Eigen Foundation banned employees "from individually claiming airdrops" in a policy shift published on GitHub on June 3, according to commit records. The Foundation cited "concerns about conflicts of interest or the appearance of such conflicts of interest." Wallets included on the Eigen Labs list continued claiming through mid-June.
Eigen Labs and the Eigen Foundation say that employees who already claimed airdrops will not be required to return their tokens.