Source: Four Pillars
Earlier this year, $EIGEN was trading at over $13 on the over-the-counter market, but since going public on October 1, its price has fluctuated between $3 and $4, with a fully diluted valuation of around $5 billion to $7 billion. billion dollars. This means that EigenLayer’s market value fell by 70% in just half a year. Such a sharp drop has confused investors and prompted criticism that the much-anticipated Restaking innovation failed to live up to expectations. In this report, we will analyze the root causes of $EIGEN’s underperformance and explore its future prospects.
For a detailed explanation of the concept of Restaking, please refer to the report (Restaking Stack: Classifying the Restaking Ecosystem)
1. Background - Reasons for $EIGEN’s poor performance after listing
$EIGEN’s weak post-IPO performance can be largely attributed to two key factors often mentioned within the community.
1.1 The ambiguity of Token utility
In a white paper on April 29, 2024, Eigenlayer described $EIGEN as a “universal subjective work token.” This complex and unfamiliar terminology makes it difficult for investors to understand the core value of Token.
Image source: Youtube (@Curt Explores)
Simply put, $EIGEN’s main role is to mediate and resolve issues in the Active Verification Service (AVS), but communicating this effectively is a challenge.
For example, while the concept is clear to those in the industry, a lack of direct information about the token’s actual uses—especially among retail investors—has created confusion. The complexity of explaining how $EIGEN works to resolve glitches in a decentralized system increases the difficulty of being accepted and understood, especially in an ecosystem filled with competing narratives. Let’s dig into the components of this explanation.
Universal
"Universal" means that $EIGEN is not limited to a specific blockchain network, but can be widely used in a variety of blockchain infrastructure and applications, such as zk-rollups, cross-chain bridges, MEV solutions, Trusted Execution Environments (TEEs) and even AGI (Artificial General Intelligence) solutions. This flexibility comes from EigenLayer’s ability to handle asset staking and verification tasks across multiple networks despite being based on Ethereum. This broad applicability of $EIGEN is its primary differentiating feature compared to traditional L1 tokens that are often tied to specific blockchain ecosystems.
Work Token
"Work Token" refers to a token that is pledged in the network to perform specific tasks. In blockchain, these tasks include validating transactions, generating proofs, and ensuring the integrity of the network—the basis of a proof-of-stake (PoS) system. In EigenLayer, $EIGEN and its pledged version $bEIGEN support performing these tasks in various AVS. Validators who fail to comply with the protocol rules will face financial penalties in the form of slashing and forfeiture of $bEIGEN. This mechanism is similar to a traditional PoS system, but its mission is broader, beyond typical L1 verification, expanding its application and scope in decentralized services.
Intersubjective
In the blockchain environment, faults can be divided into three categories: objective faults, subjective faults and subjective attributable faults. Subjectively attributable failures are particularly interesting because they cannot be verified by technical means alone, yet are generally recognized by participants. Such glitches typically occur in situations involving off-chain data or requiring human judgment, such as price data errors or censorship incidents. Resolving such failures relies on the collective consensus of network participants, making it central to $EIGEN’s utility. This ability to handle consensus-driven errors, especially errors involving subjective data input, sets $EIGEN apart from coins that focus on purely technical verification.
Image source: EIGEN universal inter-subject work token | Feature layer
As mentioned above, $EIGEN serves as a mediation tool specifically designed to address subjective glitches—problems that cannot be clearly judged right or wrong by technical means, but are widely recognized as wrong by participants. For example, if a validator intentionally submits incorrect data or violates protocol rules, the malicious party's staked $EIGEN will be removed from the network through the fork process. A fork here means more than just separation from the network, it is a powerful punitive measure that can zero out the value of tokens held by offending validators.
bifurcation process
Challengers can raise a dispute when a failure is detected in a specific Active Validation Service (AVS). To solve this problem, the network will destroy the original $EIGEN and issue a new forked token $EIGEN2. In this process, the Fork Distributor (FD) contract allows legitimate $EIGEN holders and stakers to exchange their tokens for the new forked version $EIGEN2. However, a malicious actor's staked $bEIGEN cannot be converted into $bEIGEN2, rendering their asset worthless.
This fork mechanism serves as both a deterrent and a protective measure, ensuring that those participants who contribute to the health of the network are protected, while malicious actors will find the value of their holdings reduced to zero. This is a powerful economic penalty mechanism designed to maintain the integrity of the network and ensure that only honest participants are rewarded.
Image source: EIGEN universal inter-subject work token | Feature layer
At this point, a reasonable question is: why not handle these failures directly with Ethereum, instead of relying on $EIGEN? This is because adding tasks that require subjective or subjective decision-making to Ethereum’s consensus mechanism may cause it to be overburdened. Ethereum’s consensus mechanism is primarily used for tasks that can be objectively verified, such as verifying transactions and ensuring the correct state of the blockchain.
However, when it comes to tasks that require human judgment, such as deciding whether an outcome is fair (such as in prediction markets or content moderation), reaching consensus becomes more complex. These tasks could overload Ethereum’s social consensus mechanism because they require subjective agreement among participants, which is not as simple as verifying cryptographic proofs. By introducing the $EIGEN token, Eigenlayer attempts to offload these subjective tasks to a different consensus layer, which can retain Ethereum's cryptoeconomic security of objectively verifiable transactions while handling more complex, needing social consensus elsewhere. task.
Overall, while $EIGEN's existence makes sense, its utility is both obvious and somewhat obscure. While $EIGEN’s role in enhancing the security of AVS and resolving subjective failures is clear in theory, its practical utility remains unknown to many investors. The value of this token is only apparent when subjective errors occur in the network, which means that in the absence of these issues, its utility may not seem as obvious. This makes $EIGEN a niche token, in contrast to meme coins that lack inherent utility but become popular due to hype.
This was demonstrated in a recent survey conducted by Pinkbrains CEO DeFiIgnas, in which over 60% of respondents (2,314 out of 3,839 people) stated that they would prefer to invest in $MOG over $EIGEN. This result suggests that investors tend to favor assets with simple and understandable narratives, further highlighting $EIGEN’s challenge in attracting wider attention.
Image source: X (@DefiIgnas)
1.2. The impact of selling pressure caused by airdrops
Another key reason for $EIGEN’s recent underperformance is increased selling pressure from airdrop recipients seeking to realize profits. This phenomenon is common after many projects’ tokens are listed. Historical data shows that many airdrop tokens face downward price pressure soon after listing, as early holders are often eager to sell their free tokens. For example, of the major projects that have been listed over the past year, most tokens have experienced significant price drops within the first 30 days of listing. While general economic conditions, valuations, and token economics all play a role in these price movements, the impact of airdropped tokens cannot be underestimated.
Source: Four Pillars
In the case of EigenLayer, a whopping 46% of the initial $185 million in circulation (approximately $86 million $EIGEN) came from airdrops. These tokens include allocations to institutional investors and crypto heavyweights like Blockchain Capital and Galaxy Digital. Notably, Justin Sun and GCR reportedly moved $EIGEN airdrops worth approximately $8.75 million and $1.06 million respectively to centralized exchanges, further exacerbating the selling pressure. In addition, the EigenLayer Foundation recently announced that approximately 1.67 million $EIGEN was stolen in a hacking incident, making the situation even worse.
2. Enlightenment - Pay attention to the strong foundation for the growth of the AVS ecosystem
As with any asset, price fluctuations often reflect a project's underlying growth over the long term. At this point, EigenLayer's fundamentals remain solid, and the main factor to watch going forward is the growth of its Active Verification Services (AVS) ecosystem.
2.1 Market dominance brought by first-mover advantage
Source: Four Pillars
EigenLayer launched its service in June 2023, pioneering the concept of heavy staking. Since then, various innovative projects inspired by this model have emerged in different blockchain ecosystems. For example, Symbiotic and Karak have made significant progress in the Ethereum ecosystem, while Solayer and Jito have expanded into the Solana ecosystem. In the Bitcoin industry, projects such as Babylon are exploring similar approaches. In addition, Liquid Restaking Token (LRT) projects such as Ether.fi and Puffer.fi are developed based on the basic concepts introduced by EigenLayer. This wave of development highlights the critical role EigenLayer plays in shaping the broader heavy-staking ecosystem, while also promoting a collaborative and evolving environment.
Source: Four Pillars
Market data further confirms this dominance. As of October 11, 2024, the total locked value (TVL) in the heavily pledged protocol reached approximately US$13 billion, of which EigenLayer occupied approximately US$10 billion (equivalent to 4.5 million Ethereum), accounting for 80% of the market. share. By comparison, Symbiotic and Karak have market shares of 11.7% and 3.7%, respectively.
Source: Four Pillars
2.2 The key lies in the growth of the AVS ecosystem
Although EigenLayer maintains its leading market share, the most important factor to watch in the future is the growth rate of its AVS ecosystem. No matter how advanced EigenLayer's technology is, its value will still be limited without widespread user adoption and practical application. If the growth of the ecosystem stagnates, EigenLayer may lose market share to emerging competitors. What’s more, the revenue generated by AVS is distributed directly to stakers of $EIGEN, meaning the success and expansion of AVS is closely tied to the value of $EIGEN.
Finally, while there is currently no clear narrative in the market to drive demand for $EIGEN, if the market anticipates an “AVS airdrop” of tokens similar to $TIA earlier this year, this could be a potential catalyst. . Once this expectation is formed, the growth of the AVS ecosystem may significantly increase the demand for $EIGEN. As of now, there are 17 AVS projects under development on EigenLayer, including EigenDA, and more projects may be added in the future. In addition, 44 major networks including Abstract, MegaETH, Mantle, and Movement already support or use EigenDA, demonstrating its growing influence.
Source: Four Pillars
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reproduced with permission from: (Shenchao TechFlow)
Original author: Ponyo
