EigenLayer Faces Backlash Over Early VC Staking Access

EigenLayer, the largest staking protocol with over $10 billion in total value locked (TVL), is facing backlash from what some in its community say was a lack of transparency over early investor staking practices and the real circulating supply of its native token, EIGEN.

The crux of the issue lies in how early investors were allowed to stake their locked tokens and earn rewards without it being clearly disclosed to the public.

In most crypto projects, tokens allocated to early investors are locked for a set period to align long-term incentives and prevent investors from dumping tokens on retail buyers.

In EigenLayer's case, early investors were able to stake their locked tokens and earn staking rewards.

This practice, known as "double-dipping," blurs the definition of locked tokens.

EigenLayer Response

Facing mounting criticism, EigenLayer updated its documentation to clarify its staking and reward practices. The protocol confirmed that early investors are allowed to stake their EIGEN tokens and earn rewards, and that these staking rewards are not subject to the lock-up schedule.

"EIGEN staking: Eigen Labs investors are not restricted from staking EIGEN on EigenLayer," the updated documentation stated.

EigenLayer pointed to their public statement when The Defiant reached for a request for comment.

Early Investors

In 2022, EigenLayer raised funds through a $14.4 million seed round in 2022, a $50 million Series A in February 2023,, and a $100 million round in February 2024. It distributed tokens to investors in these rounds at a discount to the price the token was issued to the public.

The issue came to light when "Karl_0x," a crypto community member, saidthat nearly 40% of all EIGEN tokens, worth $37.1 million staked, were held by just 13 addresses. In total, the staked EIGEN tokens are valued at around $94.9 million, according to Dune data.

"The public was unaware of this practice and believed these tokens were in circulation , leading to misleading conclusions about the token's float and, consequently, investment decisions," Karl_0x posted on X.

Upon its launch on exchanges on Sept.30, the EIGEN token recorded an initial surge in price, eventually sliding 16% from its peak of $4.4 to $3.4.

With a fixed total supply of 1.68 billion EIGEN tokens and a current circulating supply of around 186 million, the asset holds a fully diluted valuation of approximately $5.8 billion. However, the market cap, excluding tokens not in circulation, stands at about $650 million.

According to data from DeFiLlama, EigenLayer currently ranks as the third-largest DeFi protocol by TVL, holding 4.59 million ETH, down 14% from its peak of 5.43 million ETH in mid-June. The protocol accounts for 13.6% of the total staked Ethereum supply.

EigenLayer emphasized that annual rewards for staking EIGEN tokens are capped at 1% of the total initial supply. This structure allocates 25% of the rewards to EIGEN stakers and 75% to Ethereum (ETH) stakers. By distributing the majority of rewards to ETH stakers, EigenLayer said it aims to prevent investor privilege and ensure that non-investor users benefit.

This model, they argue, differs from typical proof-of-stake protocols where all rewards go to native token holders, often disproportionately favoring early investors.

After EigenLayer updated its documentation, several community members expressed their discontent.

One user, known as @WR_Crypto on X, commented, “this is where the problem lies. Look at common investors in TIA, SEI, SUI, etc., which all have staking for vesting tokens. And then the VCs wonder why meme tokens are becoming more appealing.” Another member questioned why these details are only announced after being called out. EigenLayer and LayerZero

Amidst this controversy, EigenLayer on Oct.2 announced a partnership with LayerZero, a cross-chain messaging protocol, to create a more secure system for cross-chain communication.

This partnership introduces a "CryptoEconomic Decentralized Verifier Networks" (DVNs) framework. The DVNs combine financial incentives with technical verification to ensure the integrity of cross-chain messaging.

In this system, verifiers stake assets like ETH, EIGEN, or LayerZero's native token, ZRO, to secure communications. If dishonest behavior is detected, the staked assets can be "slashed," creating a financial penalty.