Author: Ponyo

Compiled by: TechFlow

Earlier this year, $EIGEN was trading at over $13 in the OTC market, but since its listing on October 1, its price has fluctuated between $3 and $4, with a fully diluted valuation of approximately $5 billion to $7 billion. This means that EigenLayer's market value has fallen by 70% in just half a year. Such a sharp drop has confused investors and sparked criticism that the much-anticipated Restaking innovation has failed to meet expectations. In this report, we will analyze the root causes of $EIGEN's poor performance and explore its future prospects.

*For a detailed explanation of the Restaking concept, please refer to the report (Restaking Stack: Classifying the Restaking Ecosystem)

1. Background - Reasons for $EIGEN’s poor performance after listing

$EIGEN’s weak performance after listing can be mainly attributed to two key factors often mentioned in the community.

1.1 The ambiguity of token utility

In the 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 the token.

Source: Youtube (@CurtExplores)

In simple terms, $EIGEN’s primary 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 industry insiders, the lack of direct information about the actual purpose of the token — especially for retail investors — creates confusion. The complexity of explaining how $EIGEN solves failures in decentralized systems increases the difficulty of being accepted and understood, especially in an ecosystem full of competing narratives. Let’s dive 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 infrastructures and applications, such as zk-rollups, cross-chain bridges, MEV solutions, trusted execution environments (TEEs), and even AGI (general artificial intelligence) solutions. This flexibility stems from the fact that although EigenLayer is based on Ethereum, it can handle asset staking and verification tasks in multiple networks. Compared with traditional L1 tokens that are usually tied to a specific blockchain ecosystem, this wide applicability of $EIGEN is its main differentiating feature.

Work Token

"Work Tokens" refers to tokens that are staked in the network to perform specific tasks. In blockchain, these tasks include validating transactions, generating proofs, and ensuring the integrity of the network - these are the basis of Proof of Stake (PoS) systems. In EigenLayer, $EIGEN and its staked version $bEIGEN support the performance of these tasks in various AVS. Validators who fail to follow the rules of the protocol will face economic penalties, namely slashing and confiscation of $bEIGEN. This mechanism is similar to traditional PoS systems, but its tasks are broader, beyond typical L1 verification, expanding the application and scope of decentralized services.

Intersubjective

In the context of blockchains, faults can be divided into three categories: objective faults, subjective faults, and subjectively attributable faults. Subjectively attributable faults are particularly interesting because they cannot be verified by technical means alone, but are generally recognized by participants. Such faults often occur in situations involving off-chain data or requiring human judgment, such as price data errors or censorship incidents. Solving such faults relies on the collective consensus of network participants, making it core to the utility of $EIGEN. This ability to handle consensus-driven errors, especially those involving subjective data inputs, differentiates $EIGEN from tokens focused on pure technical verification.

Source: EIGEN: Universal Inter-Subject Work Token | Feature Layer

As mentioned above, $EIGEN is a mediation tool specifically designed to resolve subjective failures - problems that cannot be clearly judged as right or wrong through technical means, but are widely recognized as errors by participants. For example, if a validator deliberately submits incorrect data or violates the protocol rules, the malicious party's staked $EIGEN will be removed from the network through the fork process. The fork here does not only mean separation from the network, it is a powerful punishment measure that can reduce the value of the tokens held by the violating validator to zero.

Forking process

When a failure is detected in a specific Active Verification Service (AVS), a challenger can raise a dispute. To resolve this issue, the network destroys the original $EIGEN and issues a new forked token $EIGEN2. During this process, the Fork Distributor (FD) contract allows legitimate $EIGEN holders and stakers to redeem their tokens for the new forked version $EIGEN2. However, the staked $bEIGEN of malicious actors cannot be converted into $bEIGEN2, making their assets worthless.

This forking mechanism acts as both a deterrent and a safeguard, ensuring that participants who contribute to the health of the network are protected, while malicious actors see the value of their holdings drop to zero. It is a strong economic penalty mechanism designed to maintain the integrity of the network and ensure that only honest participants are rewarded.

Source: EIGEN: Universal Inter-Subject Work Token | Feature Layer

At this point, a reasonable question is: why not just use $ETH to handle these failures, 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 overloaded. Ethereum's consensus mechanism is mainly used for tasks that can be objectively verified, such as validating transactions and ensuring the correct state of the blockchain.

However, when it comes to tasks that require human judgment, such as determining whether an outcome is fair (e.g. in prediction markets or content moderation), consensus becomes more complex. These tasks can 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 seeks to offload these subjective tasks to a different consensus layer, so that more complex tasks requiring social consensus can be handled elsewhere while preserving Ethereum's cryptoeconomic security for objectively verifiable transactions.

Overall, while $EIGEN’s existence makes sense, its utility is both obvious and somewhat ambiguous. While $EIGEN’s role in enhancing the security of AVS and addressing subjective failures is clear in theory, its actual utility remains unknown to many investors. The value of this token only becomes apparent when subjective failures occur in the network, meaning that in the absence of these issues, its utility may not seem as obvious. This makes $EIGEN a niche token, in stark contrast to meme coins that gain popularity due to hype despite lacking inherent utility.

This was reflected in a recent survey conducted by Pinkbrains CEO DeFiIgnas, where over 60% of respondents (2,314 out of 3,839) said they would prefer to invest in $MOG over $EIGEN. This result shows that investors tend to prefer assets with simple and easy-to-understand narratives, which further highlights the challenge of $EIGEN in attracting wider attention.

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 macroeconomic conditions, valuations, and token economics all play a role in these price movements, the impact of airdropped tokens cannot be underestimated.

In the case of EigenLayer, a whopping 46% of the original 185 million $EIGEN in circulation (approximately 86 million $EIGEN) came from airdrops. These tokens included allocations to institutional investors and crypto-heavy players like Blockchain Capital and Galaxy Digital. Notably, Justin Sun and GCR reportedly transferred approximately $8.75 million and $1.06 million worth of airdropped $EIGEN to centralized exchanges, respectively, further exacerbating the selling pressure. Moreover, the EigenLayer Foundation recently announced that approximately 1.67 million $EIGEN was stolen in a hack, making the situation even worse.

2. Implications - Focus on the strong foundation of AVS ecosystem growth

As with any asset, price fluctuations tend to reflect the fundamental growth of a project over the long term. In this regard, EigenLayer’s fundamentals remain solid, with the main factor to watch going forward being the growth of its Active Validation Service (AVS) ecosystem.

2.1 Market dominance brought by first-mover advantage

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 space, 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 fostering a collaborative and evolving environment.

Market data further confirms this dominance. As of October 11, 2024, the total locked value (TVL) in heavy staking protocols reached about $13 billion, of which EigenLayer accounted for about $10 billion (equivalent to $4.5 million ETH), accounting for 80% of the market share. In comparison, Symbiotic and Karak have market shares of 11.7% and 3.7%, respectively.

2.2 The key lies in the growth of the AVS ecosystem

While EigenLayer maintains a 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 remains limited without widespread user adoption and real-world applications. If the growth of the ecosystem stagnates, EigenLayer may lose market share to emerging competitors. More importantly, the revenue generated by AVS is directly distributed to $EIGEN stakers, which means that the success and expansion of AVS is closely tied to the value of $EIGEN.

Finally, while there is no clear narrative driving demand for $EIGEN in the market right now, if the market anticipates an “AVS airdrop” token similar to $TIA earlier this year, this could be a potential catalyst. Once this expectation forms, the growth of the AVS ecosystem could significantly increase demand for $EIGEN. As of now, there are 17 AVS projects in development on EigenLayer, including EigenDA, and more projects may join in the future. In addition, 44 major networks, including Abstract, MegaETH, Mantle, and Movement, already support or use EigenDA, showing its growing influence.