Bankless: Will EigenLayer live up to expectations?

Original author: Jack Inabinet, Bankless

Original compilation: White Water, Golden Finance

EigenLayer is undoubtedly the most anticipated Airdrop opportunity in Crypto Assets history, but is it inevitable for EIGEN and the broader Ethereum ecosystem that Token will fall after the Airdrop?

EigenLayer is at the forefront of re-staking, creating a shared security marketplace that allows developers seeking to create decentralized networks to circumvent the difficulties associated with bootstrapping and operating their own networks of trust, dropping the barrier to entry for creating these networks, and giving encryption security applications a long tail.

EIGEN Airdrop alone is poised to be among the largest Airdrop Crypto Assets ever, with depositors easily getting an increased allocation from Liquidity Re stake (LRT) protocol and Active Verification Services (AVS)!

In anticipation of these upcoming airdrops, nearly 5 million ETH (worth about $15.5 billion) has been redistributed to EigenLayer, but longing concerns are increasingly concerned that the yield generated by the protocol's AVS will not satisfy depositors in the post-EIGEN Airdrop world.

Market participants deposit EigenLayer not out of their own inner generosity, but because they believe that doing so will generate financial returns that exceed their opportunity cost, or through alternative strategies (e.g., for DEX exchanges).

While EigenLayer currently supports delegations to AVS, they have yet to generate yield, meaning depositors are simply speculating that future Airdrops will compensate them.

In the absence of actual revenue, imagination can go wild when predicting valuations, but their inevitable arrival may pour cold water on the collective illusion that EigenLayer is easily worth tens of billions of dollars; If AVS yields disappoint, protocol will find it increasingly difficult to justify high valuations.

There is no direct comparison long AVS, however, Celestia (a Blockchain that provides data availability services similar to EigenDA) generates only a few k dollars in revenue per year, which is a fraction of a $12 billion network that relies on high levels of Token inflation to attract investors to protect its network.

AVS must adopt its own inflationary tokenomics to provide security, which will only exacerbate the oversupply of alternatives that the market has struggled 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 percentage of the total number of tokens it intends to Airdrop in the first round, fulfilling the promise of future EIGEN rewards as a carrot to incentivize depositors.

Unfortunately, if the market starts to look at this sustainability, it may perceive EigenLayer as overvalued, negatively impacting the perceived value of future Airdrop and causing TVL to drain from protocol until equilibrium is reached, and the remaining depositors feel that their capital opportunity cost is adequately compensated.

Speculators seeking to maximize the opportunities of EigenLayer often operate with high leverage, spurring demand for a wide range of encryption applications, from general coin markets to yield play people for suckers protocol.

While high-yielding EigenLayer opportunities benefit the entire Ethereum Decentralized Finance ecosystem, depositors' dissatisfaction with implied returns can Close Position, eroding yields and triggering negative consequences for projects that rely on re stake success.

In addition, EigenLayer has been a major absorber of ETH since December, with deposits rising by 6, 100% in less than 5 months. The prices of Ethereum and other related encryption assets will be adversely affected if the marginal funds flowing into ETH by EigenLayer users seeking Airdrop are converted into sales while abandoning Decentralized Finance protocol that promote speculation.

By aiming for greatness and catalyzing a revolution in encryption economic security, EigenLayer makes its Airdrop front running an obvious strategy, but the Crypto Assets returns will not be risk-free, and it is questionable whether EigenLayer's current level of deposits is sustainable.

While protocol are free to minting and inflate their Token, market participants must buy the ever-increasing supply or Token prices will fall fall.

While the concept pursued by EigenLayer is certainly commendable, it remains to be seen whether re-staking is really the next great encryption innovation or just another encryption daydream. Token inflation is unsustainable and generates little to no real revenue.

If the latter scenario turns out to be true, EigenLayer will be relegated to the "bad idea" box, dealing a major blow to the Ethereum ecosystem and losing the key shared narrative.