Is it all the fault of airdrops? Tracking EigenLayer employee wallets, more than ten people bypassed geographical restrictions to claim airdrops

Original Title: Crypto Airdrops Ban U.S. Users, but Americans Are Claiming Tokens Anyway

Authors: Danny Nelson, Sam Kessler also contributed, CoinDesk

Translation by: Felix, PANews

Key Points:

• Due to legal caution, many crypto projects exclude U.S. users from token airdrops.
• U.S. crypto users (even those within the projects who are equally cautious) often find ways to claim tokens.
• Lawyers say this "hypocritical" behavior could undermine efforts within the industry to avoid U.S. jurisdiction.

The U.S. presents a paradox for some crypto startups.

These companies cannot ignore the tech-savvy American workforce, nor can they allow their newly issued tokens to violate one of the world's strictest financial regulatory regimes.

EigenLayer is one of the hottest projects on the Ethereum network, employing a common solution in the crypto space: hiring U.S. developers through an American company. Meanwhile, an independent legal entity issues the EIGEN token on an island where U.S. securities and tax laws do not apply.

Two projects within the EigenLayer ecosystem, Renzo and Ether.Fi, explicitly prohibit U.S. users from claiming tokens in their airdrops.

However, this move has clearly not worked.

According to an analysis of blockchain data, wallets associated with at least 10 U.S. employees of Eigen Labs (engineers, directors, executives, chief lawyers) have claimed airdrops worth hundreds of thousands of dollars from Renzo and Ether.Fi.

CoinDesk typically does not report on individuals' financial situations. However, according to a blog post from Eigen Labs, many employees chose to "publicly" claim their cryptocurrency. The blog post details that the company has prohibited EigenLayer ecosystem projects from airdropping tokens to Eigen Labs employees, stating that if they wish to airdrop to Eigen Labs, they can only do so to the company.

Moreover, their on-chain activities indicate a selective compliance attitude, which crypto insiders claim is common throughout the industry.

Open Secret

Few crypto teams believe that the tokens they issue should be classified as securities. Nevertheless, out of fear of U.S. regulators, most projects theoretically exclude U.S. users from airdrops.

This theory may be more of a farce.

A dozen anonymous U.S. industry insiders have stated that they have found ways to circumvent project bans to obtain airdrops.

Ignoring and circumventing geographical restrictions is common in the U.S. crypto space.

A U.S. industry lawyer privately stated that he had previously claimed tokens from airdrop projects attempting to use geographical restrictions.

The lawyer noted that the chaotic situation is "an unfortunate but predictable result of the industry's lack of regulatory transparency over the years."

Risk-Reward

Given the SEC's crackdown on the crypto industry over the years, most self-issuing teams are reluctant to draw attention to their airdrops.

Project teams try to avoid placing their tokens at regulatory risk. They prohibit U.S. users through strict terms of service agreements. They set up geographical restrictions to capture web traffic from the U.S.

Project teams rarely conduct strict KYC when distributing new tokens, while banks and other financial institutions must do so when opening accounts.

Perhaps it is not surprising that weaker safeguards are ineffective.

An executive from a startup stated that geographical restrictions can "cover you," as the company issues tokens through offshore entities and privately admits to using a VPN to claim restricted airdrops from other projects.

The deterrent effect of terms of service agreements is weaker. EigenLayer's airdrop blocked EIGEN claims from "prohibited jurisdictions" like the U.S. and Canada, as well as anyone using a VPN.

Sundel, an anonymous EigenLayer user who claimed EIGEN tokens in Canada, described EigenLayer's geographical restrictions as a "stupid" protective measure against the SEC's "overreach."

Sundel stated that he was not intimidated by EigenLayer's terms and instead obtained tokens with the help of a VPN and some network code configurations.

A former employee of a well-known crypto company stated that jurisdiction-evading strategies "are just preparing for potential regulatory investigations." A European crypto consultant claimed that companies intentionally set weaker restrictions.

Prohibiting U.S. users has always been purely legal protection. But you want U.S. users, too. You hope that U.S. users can receive airdrops in the simplest way.

Employees in the U.S. crypto industry admit that they generally do not care about geographical restrictions.

Dan McAvoy, co-chair of Polsinelli PC's Blockchain + Business, stated: "If you know someone is deliberately violating the terms and conditions, and you know someone is falsely claiming not to be in the U.S., that won't help when regulators come knocking."

Offshore Tokens

EigenLayer developer Eigen Labs is based in Seattle, a hub for software developers. The Eigen Foundation, responsible for the EigenLayer airdrop, is establishing a presence in the Cayman Islands, where friendly laws have attracted many crypto companies.

According to the written registered address, the future office location of the Eigen Foundation is directly across from Ether.Fi, one of the largest re-staking projects on EigenLayer. According to Canadian tech news site Betakit, its CEO, Canadian expatriate Mike Silagadze, moved to the Cayman Islands to establish Ether.Fi after being forced out by regulations in his home country.

When Ether.Fi launched its new token in March, it allocated a significant amount of ETHFI tokens to each employee of Eigen Labs. Silagadze stated that the project had previously requested a list of crypto wallets for its employees from Eigen Labs.

Silagadze said, "We only received a list with 50 addresses, without names, so we had no idea who these tokens would go to." (Eigen Labs confirmed that it had sent the list of all employee wallets to projects intending to airdrop tokens.)

In a follow-up interview, Silagadze stated, "We block U.S. users through geographical restrictions, VPN blocking, and terms of service."

Note: CoinDesk's parent company, Bullish, is an investor in Ether.Fi.

Another re-staking project in the EigenLayer ecosystem, Renzo, issued tokens through an offshore entity in April and blocked U.S. web traffic. "Our terms of service clearly state that U.S. users are not allowed to claim tokens," said Kratik Lodha, a representative of the token issuer RestakeX Foundation.

According to blockchain data, dozens of wallets associated with Eigen Labs employees have claimed airdrops from Ether.Fi and Renzo.

Kratik Lodha stated, "The token airdrops claimed by Eigen Labs employees are subject to the same strict restrictions and verification processes as any other participants."

Onshore Treasure

Despite Renzo and Ether.Fi's efforts to prohibit U.S. users from claiming, their airdrops to Eigen Labs employees may complicate matters: most of the company's employees appear to reside in the U.S.

According to LinkedIn profiles, more than half of Eigen Labs employees lived in U.S. cities like Austin, San Francisco, and Seattle during the airdrop.

To determine whether U.S. users claimed the restricted airdrop, CoinDesk examined transaction records on the Ethereum blockchain, compiled a list of all Eigen Labs employees, and then searched for crypto wallets with Ethereum Name Service (ENS) nicknames similar to their names. CoinDesk narrowed the list down to wallets that had claimed an airdrop at least once, ultimately identifying a dozen wallets, including those with clear ties to Eigen Labs employees claiming to reside in the U.S.

CoinDesk will not disclose individual employees' names, providing only sufficient details. All employees mentioned in this article did not respond to requests for comment.

A wallet associated with Eigen Labs' general counsel was a clear recipient of the Ether.Fi airdrop.

In January 2022, the company's current chief lawyer tweeted an ENS nickname. Eleven months later, the wallet controlling that nickname transferred the ENS to another wallet.

On May 27 of this year, a second wallet claimed 10,490.9 ETHFI from Ether.Fi (worth $52,000 at the time). (Hours after CoinDesk requested comments from the general counsel, the tweet with the ENS nickname from 2022 was deleted.)

The director of developer relations at Eigen Labs had previously disclosed his ENS on social media. On March 18, a wallet with that ENS name claimed 10,490.9 ETHFI (worth $33,000 at the time) and on May 3 claimed 66,667 REZ (worth $12,000 at the time).

On April 12, a wallet matching the ENS with the name of Eigen Labs' chief operating officer claimed 10,490.9 ETHFI from Ether.Fi (worth over $53,000 at the time).

Other wallets associated with the chief strategy officer of the Eigen Foundation, the protocol development director of Eigen Labs, and several engineers claimed tokens worth hundreds of thousands of dollars from Ether.Fi and Renzo. According to their respective LinkedIn profiles, they are all U.S. residents.

Legal Scrutiny

How the distributions from Ether.Fi and Renzo contradict U.S. securities laws remains hypothetical. No regulatory agency has accused these projects, Eigen Labs, or its employees of wrongdoing.

An industry insider focused on compliance trends stated, "All lawyers advise everyone to comply with securities laws when issuing tokens, even those that claim not to be securities."

Renzo's RestakeX Foundation stated that it attempts to prevent U.S. users from claiming to "fully comply with U.S. securities laws, including Regulation S."

Regulation S allows issuers to sell securities without registration, provided that the buyers are not U.S. persons.

Two anonymous industry lawyers stated that if a project knows its airdrop will go to employees of a U.S. company, it may be more difficult for them to apply for a securities exemption.

A third lawyer noted that, generally speaking, crypto insiders claiming to ignore geographical restrictions may complicate their efforts to evade U.S. jurisdiction.

Quick Profits

Eigen Labs' assistance to its U.S. employees in obtaining restricted airdrops is somewhat ironic. EigenLayer makes it difficult for all U.S. users to claim its airdrops, while the protocol previously welcomed their deposits.

An industry lawyer stated, "Working for a company that prevents U.S. users from receiving airdrops while being able to receive airdrops from other companies undoubtedly raises questions about the legitimacy of the geographical restrictions."

After the airdrop incident, Eigen Labs stated that it has implemented a "post-airdrop lock-up period," in other words, prohibiting employees from selling their claimed assets for a certain period. Eigen Labs did not disclose when this policy would take effect.

According to blockchain data, a wallet associated with Eigen Labs' general counsel claimed the Ether.Fi airdrop at 9:46 PM Seattle time on May 27.

Eighteen minutes later, that wallet had sold more than half of its ETHFI, making a profit of at least $21,000.