EigenLayer finally announced its long-anticipated airdrop on Monday, and in addition to imposing a number of unconventional standards, it has many wondering what its impact will be on ether when it launches in early May.

With billions of ETH restaked in EigenLayer directly and via liquid restaking tokens with their own impending airdrops, the question arises what will happen if all that ETH gets unstaked.

As for the details of the airdrop itself, the restaking specialist’s EIGEN token will not be tradeable at launch. In its “initial phase,” according to the Eigen Foundation, the token will be “non-transferable and non-forkable.” The locked-down setup created liquidity and pricing concerns for some likely airdrop participants. 

Read more: What Is EigenLayer? A Guide to the Decentralized ETH Restaking Protocol

Out of a total of 1.7 billion tokens at launch, the airdrop has allocated 29.5% to investors, plus 25.5% to “early contributors,” as well as 15% to staking contributors. Investor distributions come with a one-year cliff. 

Gytis Trilikauskis, general partner of the DeFi-focused hedge fund firm MEV Capital, told Unchained that the timing of the airdrop appears to be a compromise of sorts.

“Clearly, they feel that it’s too early to do a public launch with Eigen token tradable on [centralized and decentralized exchanges], but also are feeling huge pressure from VC and early backers to unlock their tokens early,” Trilikauskis said. 

The restriction on initial trading, which the EigenLayer Foundation said would “best support the long-term growth and maturity of the EigenLayer ecosystem,” would prevent the token from selling off after its airdrop. The EigenLayer Foundation is a new entity set up to facilitate the airdrop. 

Though figures are still emerging, the airdrop may go down as one of the largest in the industry’s history, comparable to Uniswap’s $6.4 billion airdrop in Sept. 2020. It’s being closely watched in terms of its potential impact on the Ethereum ecosystem, including the abundant ether (ETH) that powers EigenLayer restaking.

EigenLayer is the project that Franklin Templeton called “the blackhole of Ethereum” because of its exponential asset-gathering growth in the ecosystem since launching less than a year ago. 

More than $17.5 billion of ETH is currently restaked in EigenLayer, according to DeFiLlama, not just directly, but also through various Liquid Restaking Tokens (LRT) services such as Kelp DAO, Swell, Renzo, Puffer, and EtherFi. 

Read more: Top 10 Crypto Projects With Points Programs That Haven’t Held Airdrops Yet

All of these platforms have one thing in common: they each have a points program which will eventually lead to an airdrop. This means that depositors are expecting to receive tokens as rewards for early support. In fact, EtherFi already introduced its first airdrop in March, with another expected later this year.

This unique situation has sparked a debate over the potential consequences of the EigenLayer ecosystem airdrops on the price of ETH. Could this event lead to a decline in ether, or might it instead act as a catalyst for further growth?

The price of ether remained flat at around $3,180 following EigenLayer’s announcement.

Will People Sell Their ETH After the Airdrops? 

As the points programs draw to a close, participants who engaged primarily for the incentives offered by EigenLayer, “mercenary airdrop farmers,” if you will, might start to unstake their restaked ether en masse. If they were restaking not out of loyalty to the platform or long-term investment strategy, they might leave once they obtain the short-term gains provided by airdrops.

The question is whether the marginally higher yields provided by restaking with Eigenlayer justify the additional risks compared to traditional staking with Ethereum. Restaking carries greater complexity and exposure, factors that might seem less attractive once the additional incentives evaporate.

Should investors choose to stop restaking, the next set of decisions they face includes whether to maintain their holdings in conventional ETH or other liquid staking tokens, or sell these unstaked assets—amounting to approximately $16 billion in value. The potential for such a large volume of ether to be sold could substantially impact its price and the broader market dynamics.

Read more: Should You Sell Ether Ahead of the SEC’s Expected Rejection of a Spot Ether ETF on May 23?

However, Jim Hwang, COO at Firinne Capital, disagrees. “Often, it is the airdropped token that is sold. Although that may be less of a case for EigenLayer, its airdrop will not materially trigger an ETH sale,” he told Unchained. “Presumably, the new token’s value proposition and utility is distinct from ETH and of a more limited scale. ETH investors are also hodlers treating it as a numeraire in its own right.” A numeraire is the base currency that an investor transacts in and evaluates their gains and losses in.

Expressing a similar sentiment, Kelly Ye, a portfolio manager at Decentral Park Capital, told Unchained that “there will be a lot of [actively validated services] still doing airdrops to restakers.” She added: “Restaking will still offer higher yield than not staking. [Users] could deploy ETH into other ecosystems or DeFi though if [the market gets] hot.”

Another Scenario

There’s an equally compelling argument that the EigenLayer airdrop would actually be good for ether. Drawing from the experience of the Shapella upgrade, which saw an increase in the demand for staked ETH, contrary to expectations of mass withdrawals, some believe that the EigenLayer airdrop could boost investor confidence. 

The argument here is that the successful launch of EigenLayer, coupled with the distribution of airdrop rewards, might be perceived as a positive development, encouraging more investment into Ethereum’s ecosystem rather than triggering a sell-off.

Moreover, if the concept of restaking in general succeeds, it would provide opportunities for innovations to occur in the ecosystem, potentially leading to stronger long-term gains for ETH.