EigenLayer undoubtedly is the most anticipated airdrop opportunity in the history of cryptocurrencies, but is the post-drop airdrop inevitable for both EIGEN and the wider Ethereum ecosystem? This article is sourced from the article “Can EigenLayer Live Up to Hype?” by Bankless and compiled, translated, and written by Bitpush.
(Table of Contents)
Can EigenLayer Airdrops Meet Users’ Expectations?
AVS Profits Could Be a Problem
Does EigenLayer Determine Ethereum’s Success?
Being at the forefront of staking, EigenLayer has established a shared security market that allows developers seeking to build decentralized networks to overcome the difficulties associated with establishing and operating their own trust networks. This reduces the barriers to entry for building these networks and empowers the long tail of cryptographic security applications.
The EIGEN airdrop alone is expected to join the ranks of the largest airdrops in the history of cryptocurrencies, where depositors can easily obtain additional allocations from the Liquidity Re-Staking (LRT) protocol and the Active Validation Service (AVS)!
Due to the anticipated upcoming airdrops, nearly 5 million ETH (approximately $15.5 billion) has already been reallocated to EigenLayer. However, more and more people are concerned that the earnings generated by the AVS of the protocol will not be sufficient for depositors in the post-EIGEN airdrop world.
The participation of market participants in EigenLayer is not driven by their own generosity, but rather because they believe that doing so will generate financial returns that exceed their opportunity costs or make money through alternative strategies (e.g., decentralized exchanges).
Although EigenLayer currently supports delegations to AVS, they have not yet generated profits. This means that depositors are merely speculating that future airdrops will compensate them.
In the absence of actual income, imagination can become wild when predicting valuations. However, the inevitable arrival of these airdrops may dampen the collective illusion that “EigenLayer is easily worth hundreds of billions of dollars.” If the AVS yield is disappointing, the protocol will find it increasingly difficult to justify its high valuation.
Many AVSs lack direct comparability, but Celestia (a blockchain that provides data availability services similar to EigenDA) generates only a few thousand dollars in revenue annually. For a network valued at $12 billion, this is just a drop in the bucket. It depends on high token inflation to attract investors to protect its network.
AVS must adopt its own inflationary token economics to provide security, which will further exacerbate the oversupply situation that has been difficult for the market to digest in recent weeks.
To avoid a massive outflow of TVL in the event of insufficient AVS yields, EigenLayer may only distribute a small portion of the total intended token airdrop in the first round, thereby fulfilling the promise of future EIGEN rewards as an incentive for depositors.
Unfortunately, if the market starts to scrutinize this sustainability, it may perceive EigenLayer as overvalued, negatively affecting the perceived value of future airdrops and leading to the loss of TVL from the protocol until a balance is reached, where remaining depositors feel adequately compensated for their capital opportunity costs.
Speculators seeking to maximize the opportunities of EigenLayer often engage in high-leverage operations, thereby stimulating demand for various crypto applications, from ordinary currency markets to yield farming protocols.
Although the high-yield opportunity of EigenLayer benefits the entire Ethereum DeFi ecosystem, dissatisfaction with the implied returns may lead to liquidations by depositors, thereby weakening the yield and causing negative consequences for projects relying on successful staking.
In addition, since December, EigenLayer has been the primary destination for ETH deposits, with deposits growing by 6,100% in less than five months. If EigenLayer users seeking airdrops start converting their marginal funds into ETH and abandon DeFi protocols that promote speculative activities, the prices of Ethereum and other related crypto assets will be adversely affected.
By targeting greatness and catalyzing the revolution of crypto-economic security, EigenLayer has made its airdrop a clear strategy. However, crypto returns are not without risks, and the sustainability of EigenLayer’s current deposit level is questionable.
Although the protocol can freely mint and inflate its tokens, market participants must purchase the increasing supply, otherwise token prices will decline.
While the concept pursued by EigenLayer is certainly commendable, whether staking is truly the next great crypto innovation or just another reliance on crypto daydreams remains to be seen. Token inflation is unsustainable and generates almost no real income.
If the latter scenario is proven true, EigenLayer will be classified as a “bad idea,” causing significant damage to the Ethereum ecosystem and losing a key shared narrative.
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