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

As a seasoned observer of the cryptosphere and someone who has witnessed numerous twists and turns in this dynamic industry, I find the situation surrounding Eigen Labs and its employees intriguing. The story seems to be a tangled web of airdrops, geoblocks, and potential legal implications, which is not uncommon in the fast-paced world of blockchain technology.

The U.S. presents a paradox to some cryptocurrency startups.

As a crypto investor, I understand the importance of catering to the tech-savvy American workforce and the need to navigate the complexities of the world’s strictest financial regulatory environment. It’s crucial not to overlook either aspect when it comes to managing my digital assets.

EigenLayer, one of Ethereum‘s most buzzing projects, chose a standard practice within crypto: it hired U.S. developers through a U.S.-based company. Simultaneously, a different legal entity – located in a jurisdiction exempt from U.S. securities and tax regulations – issued its EIGEN token.

In the domain of EigenLayer, both projects, Renzo and Ether.Fi, took an additional step by explicitly denying U.S. residents from participating in their token airdrops.

Apparently, It didn’t work.

Multiple wallets associated with at least 10 employees of Eigen Labs in the U.S., including engineers, directors, a high-ranking executive, and the company’s legal head, allegedly received significant amounts of free funds from Renzo and Ether.Fi, as suggested by CoinDesk’s examination of blockchain transactions.

Typically, CoinDesk avoids reporting on individuals’ personal financial matters. However, as stated in a blog post discussing Eigen Labs’ terminated initiative to distribute airdrop tokens to their team for EigenLayer ecosystem projects, several employees opted to make their crypto transactions public.

Additionally, their behavior on the blockchain seems to indicate a tendency towards strategic adherence to rules, which is a common trait often found within the cryptocurrency community.

One U.S.-based creator of numerous cryptocurrency ventures commented, “It’s inconsistency,” they stated. “However, it’s motivated by risk congruence – you face minimal risk when receiving an airdrop. But if you’re in charge, that changes the situation entirely.”

An open secret

Many crypto project developers argue that the tokens linked to their innovations shouldn’t be categorized as securities. However, apprehension towards U.S regulations typically leads most teams to distribute their freshly minted (and frequently valuable) cryptocurrencies with terms designed to exclude American investors.

The theory may be closer to a farce.

Approximately a dozen unidentified experts within the U.S. industry have disclosed, under the promise of confidentiality, that they have discovered methods to bypass safety measures on other projects, enabling them to gather airdrops deemed out of bounds.

Ignoring, bypassing, and flouting geoblocks is widespread in the American crypto scene, they said.

One U.S.-based industry lawyer privately said he had previously claimed tokens from projects that had tried to protect their airdrops with geofencing.

A lawyer commented that the disorganized compliance procedures we’re seeing are “unavoidable consequences stemming from the longstanding ambiguity in regulations the sector has grappled with.”

Risk-reward

Due to the prolonged scrutiny by the U.S. Securities and Exchange Commission, many groups creating their own currency tend to avoid publicizing their airdrops (giving out free coins or tokens), as they prefer to operate under the radar.

Projects aim to prevent their tokens from falling under legal scrutiny by American authorities. They use strict terms of service to exclude U.S.-based claimants. They also establish digital borders (geofences) to filter web traffic originating from the United States.

Rarely do projects perform thorough ‘know-your-customer’ (KYC) identity verifications during the distribution of new tokens, similar to how banks and other financial organizations must verify identities before opening accounts.

Perhaps unsurprisingly, the weaker safeguards don’t work too well.

Geofences “cover your ass,” said one U.S. executive at a startup that issued tokens in a restricted airdrop via an off-shore entity – and who privately acknowledged using VPNs to claim off-limits airdrops from other projects.

The terms of service for various platforms are not very effective in preventing actions they disallow. For instance, during EigenLayer’s airdrop, people living in restricted areas like the United States and Canada, or those employing VPN services, were unable to obtain EIGEN tokens.

Sundel, a pseudonymous EigenLayer user who claimed his EIGEN tokens in Canada, called EigenLayer’s geoblock a “silly” protection against the SEC’s “overreach.”

Unfazed by the legal jargon surrounding EigenLayer, I managed to secure my tokens through the use of a Virtual Private Network (VPN) and some intricate web configuration adjustments.

One former employee of a well-known crypto company said the jurisdiction-avoidance tactics were “just posturing” for potential regulatory investigations. A European crypto consultant claimed companies deliberately set weak restrictions.

“Restricting access for American users is primarily for legal reasons, but it’s beneficial for us as we value having them on board. We aim to make it as straightforward as possible for U.S. users to receive airdrops,” the consultant explained.

Employees in the U.S. cryptocurrency sector openly acknowledging they often bypass location restrictions might hint at a more permissive, unspoken understanding some refer to as a “knowing wink” approach.

If individuals are aware they’re breaking the agreed-upon rules and are deceiving others about their whereabouts in the U.S., it won’t bode well should regulatory bodies decide to investigate, as stated by attorney Dan McAvoy, a co-chair of the Blockchain+ practice for Polsinelli PC.

Offshore tokens

1. The company behind EigenLayer, known as Eigen Labs, is situated in Seattle, a city teeming with software developers. In contrast, the organization that oversaw the airdrop of EigenLayer, called Eigen Foundation, is establishing an office in the Cayman Islands, a region renowned for its favorable laws which have drawn numerous crypto companies.

Just a short walk away (figuratively) from the foundation’s upcoming location is Ether.Fi, one of the major restaking projects on EigenLayer. The CEO of this company, Mike Silagadze who originally hails from Canada, relocated to the Cayman Islands to establish Ether.Fi due to restrictive regulations in his home country as reported by Canadian tech news site Betakit.

“Silagadze stated that they received a list containing 50 addresses, with no associated names. As a result, they were unaware of the identities of those who would receive the list.” (Eigen Labs verified that they sent a list of all employees’ wallets to projects considering distributing them tokens).

In a follow-up interview he stated: “We block U.S. persons via geofencing, blocking VPNs and terms of service.”

Bullish, the parent company of CoinDesk, is an investor in Ether.Fi.

In April, another project within the EigenLayer ecosystem called Renzo launched its token using offshore entities and restricted U.S. internet traffic. According to Kratik Lodha, a spokesperson for the RestakeX Foundation (the token issuer), their Terms of Service explicitly bar U.S. residents from receiving tokens.

Based on blockchain data, numerous wallets linked to Eigen Labs employees successfully received valuable airdrops from Ether.Fi and Renzo.

According to Lodha, the airdropped tokens claimed by Eigen Labs’ staff undergo the same thorough restrictions and verification checks as those for any other participant.

Onshore treasure

Although Renzo and Ether.Fi have declared their intention to exclude U.S. citizens from making claims, the airdrops to employees at Eigen Labs could potentially cause confusion due to most of the staff seeming to reside in the United States.

A significant majority of Eigen Labs’ employees, as observed from their LinkedIn profiles, reside in American urban areas like Austin, San Francisco, and Seattle during the airdrop period.

CoinDesk chooses to keep the identities of its staff members private in this article. Sufficient information is provided for those interested in repeating our research. Regrettably, no employees mentioned in this story were available for comment when we reached out to them.

A wallet linked to the general counsel at Eigen Labs seems to be a prominent potential recipient of the Ether.Fi airdrop.

As a U.S.-based crypto investor, I recently noticed that wallets associated with key figures within the Eigen Foundation – specifically its Chief Strategy Officer and the Director of Protocol Development at Eigen Labs, along with several engineers – have amassed a significant amount of tokens collectively, sourced from Ether.fi and Renzo. A quick glance at their LinkedIn profiles confirms they are all U.S. residents.

Legal review

It’s important to note that the potential overlap between Ether.Fi, Renzo, and U.S. securities regulations is still a theoretical scenario. Neither the projects themselves nor Eigen Labs or their staff have been implicated by any regulatory body for misconduct.

According to a source knowledgeable about compliance matters within the industry, all attorneys are recommending that everyone adhere to securities regulations, regardless of whether a project claims its token offerings aren’t considered securities.

Renzo’s RestakeX Foundation stated that they aim to avoid claims by American citizens to strictly adhere to all United States securities regulations, specifically Regulation S. This regulation enables issuers to sell securities without needing prior registration, as long as the buyers are not residents of the U.S.

Two legal professionals, speaking confidentially, suggested that it could become more challenging for projects to assert securities exemptions when they distribute airdrops to employees of American firms.

In simpler terms, a legal expert mentioned that the claim by cryptocurrency insiders to ignore regional restrictions (geoblocks) might create challenges for these protocols as they try to stay out of U.S. legal control.

Quick buck

It’s more than a little ironic that Eigen Labs enables U.S. workers to secure restricted airdrops, while EigenLayer previously hindered entire nations from claiming its airdrop, despite accepting their deposits.

Eigen Labs did not return multiple requests for comment.

A legal professional in the industry commented, “It’s perplexing when a company prevents U.S. residents from receiving airdrops while allowing them for other companies. This situation undermines the credibility and validity of geoblocking practices.”

Following the airdrops, Eigen Labs announced they would implement “standard holding periods after airdrops,” which means temporarily prohibiting employees from selling their received assets for a specific duration of time. The exact implementation date of this policy remains undisclosed by Eigen Labs.

On May 27 at 9:46 PM Pacific Time, the wallet associated with Eigen Labs’ legal department was reported to have received its Ether.Fi airdrop, as indicated by data from publicly accessible blockchain records.

Sam Kessler contributed reporting.