EigenLayer leaders have today admitted to withholding the full truth about its massive insider allocations, specifically that they claimed a majority of its supply was not for sale (in ‘full lock’) despite wealthy insiders being allowed to cash out rewards.

Back in April, EigenLayer became one of Ethereum’s largest yield-boosting protocols with $15.7 billion in assets. Fast-forward to today, and its fully diluted value has crashed 60%.

EigenLayer admitted its sneaky practices in a belated transparency disclosure.

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

Restaking protocols are essentially leveraged debt schemes that use staked ether’s paltry 3.5% as collateral for derivatives that loop up to double-digit percent yields.

EigenLayer’s leaders claimed that they would lock a majority of the EIGEN token supply for at least a year. Specifically, in April, EigenLayer published a whitepaper allocating a stunning 29.5% of the token supply to early investors plus 25.5% to early contributors. Combined, these two groups would hold greater than 50% of all EIGEN.

It further promised that both of these groups agreed to three years of trading restrictions, including “a full lock in year one, followed by a linear unlock of 4% of their total allocation each month over the next two years.”

Read more: Ethereum Foundation blasted for EigenLayer conflicts of interest

EigenLayer’s shady ‘full lock’ promise

Fast-forward to September 30 — mere days into the listing of EIGEN on exchanges — and users started to notice that these so-called ‘full lock’ allocations were actually allowing investors and early insiders to cash out.

As recently as two weeks ago, Eigen did not disclose that investors holding ‘full lock’ EIGEN could sell the staking rewards received from those locked, staked tokens. Eigen then updated its docs at the very last minute.

“Basically they’re earning dividends,” noted one user. “Locked tokens should not be staked. That there is a grift,” 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 and become the second-largest liquid restaking protocol after Lido’s then-$35 billion. Today, it is is down 44% to $11.2 billion.

Although the price of ether has declined over this time and accounts for some of these dollar losses, Lido’s assets have roughly tracked the 25% price decline of ether whereas EigenLayer’s 44% losses have far outpaced ether’s decline.

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The post VCs secretly cashed out rewards on ‘locked’ EIGEN tokens appeared first on Protos.

This summer, crypto restaking protocols were rallying to new heights. Almost without exception, these leveraged plays on the native yield of proof-of-stake blockchains like Ethereum and Solana were attracting all-time high capital inflows.

As of June 5, their total value locked (TVL) — a convenient albeit incomplete metric for judging the size of crypto protocols — had crested $21 billion.

Protos has created a chart illustrating the breakdown of this TVL — click here to view.

However, as of publication time, the assets in those protocols had declined by one-third to $14 billion.

As investors return from summer vacation, university classes restart, and capital allocators reassess their portfolios with sober professionalism, the world has decided to take some risk off the table at the start of the third quarter.

Declines in these USD values are influenced by general declines in ETH, SOL, and other restaking assets. Since June 5, the crypto market has shed 26% of its total market capitalization.

Read more: Ethereum Foundation blasted for EigenLayer conflicts of interest

Restaking: More leverage, liquidation, complexity, and risk

Restaking protocols enable crypto asset holders to leverage staked assets like ETH or SOL to generate additional yield. Anil Lulla of Delphi called it “the rehypothecation of ETH to riskier networks,” and it certainly has both of those qualities.

Restaking rehypothecates, or ‘double-allocates,’ an asset across two or more protocols. A common restaking strategy involves Ethereum + Lido + EigenLayer, among many other examples. The introduction of these additional protocols beyond the base layer — in this case, Lido and EigenLayer — introduces the additional risk of two networks into one’s investment.

As compensation for these additional risks, restaking schemes advertise yields with annualized percentages in the double and even triple digits.

“Looping,” or taking out additional loans after restaking in order to restake yet again can transform these numbers into quadruple digits and beyond.

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The post CHART: Restaking assets down 33% in two months appeared first on Protos.