(Bloomberg) -- The EigenLayer crypto project is set to hand out a new token that’s become the most hyped digital-asset launch of the year, as well as one of the most controversial because of exclusions imposed on users in the US, China and elsewhere.

The decentralized finance — or DeFi — protocol has lured $14 billion in assets since January after a soft launch in 2023, data from DeFiLlama show. EigenLayer offers so-called restaking, which touts amplified returns built on top of the process of depositing Ether coins to help operate the Ethereum blockchain.

Seattle-based Eigen Labs raised about $165 million from backers including a16z Crypto as part of the development of EigenLayer, which on Friday will start sending out its EIGEN token to users through a process known as an airdrop. 

EigenLayer’s appeal is linked partly to a points system designed to reward early users with these tokens. Since it is yet to fully launch, the points and expected airdrop were the “primary incentive” to place funds in the service, said Kunal Goel, an analyst at Messari.

Read more: Crypto’s Latest Billion-Dollar Bet Comes With Layered Risks

Excluded Countries

Yet many of those who accumulated points will be barred from claiming tokens. Earlier this month, EigenLayer said that virtual private network users as well as residents of countries including the US, Canada and China will be excluded.

“It’s not possible to operate in the space without following regulatory guidelines and being responsible, and the challenging part is that there is not a lot of clarity,” Robert Drost, executive director at Eigen Foundation said during a recent podcast. 

Many projects are taking a more conservative approach to distribution, said Nick Cote, co-founder of Secondlane, a secondary market platform. 

“Issuers not being upfront with jurisdictional restrictions leaves a sour taste in people’s mouth when it comes time to receiving your rewards, and then you find out you’re disqualified for X, Y, Z reason,” Cote said.

Yield Boost

EigenLayer’s restaking service allows applications in the wider Ethereum ecosystem to tap the deep pool of transaction validators underpinning the most commercially successful blockchain. That in turn boosts the current 3% yield from just staking — or depositing — Ether to help operate Ethereum, while also adding layered risks.

Eigen Labs didn’t immediately respond to emails and texts for comment on the token launch controversy. After pushback from the crypto community, EigenLayer made changes to its airdrop and announced plans to distribute an additional 28 million EIGEN tokens.

EigenLayer is now the second most popular DeFi application. That’s partly at the expense of liquid staking, offered by platforms such as Lido and Rocket Pool. Liquid staking provides easier access to staking rewards and is the top DeFi category but has seen considerable outflows in the past two months. 

Liquid staking protocols have seen a 27% decline in total value locked since their peak of $63 billion in March, according to DefiLlama data. Nearly 4% of all Ether is currently restaked using EigenLayer, according to an April 26 note published by IntoTheBlock. 

A spokesperson for Rocket Pool said the crypto sector “has always been subject to short-term variations,” adding that “while points and airdrops can provide short-term incentives these trends can reverse just as quickly.”

Investor interest in DeFi has rebounded over the past year alongside a revival in crypto prices, including a doubling in Bitcoin. But the digital-asset market’s rally has stalled lately and the sector remains prone to intense volatility.

©2024 Bloomberg L.P.