Renzo’s liquid restaking token (LRT), ezETH, skilled a major depegging occasion that liquidated tens of millions from “loopers” utilizing the token as collateral on leverage protocols like Gearbox.
In response to data from CoinMarketCap, the digital asset’s worth plunged to a low of $2,755 earlier than recovering to its present degree of $3,178 as of press time.
Notably, decentralized change Uniswap witnessed a extra extreme depegging of ezETH, with its worth dropping to as little as $700, attributed to liquidity challenges.
Renzo is a distinguished liquid restaking protocol, with over $3 billion price of property locked on its platform, in line with DeFillama data.
Liquidation galore
The DeFi protocol Gearbox confirmed that the depeg led to the liquidation of a number of Credit score Accounts.
The protocol’s founder, 0xmikko, supplied extra insights into the state of affairs, saying:
“115 Credit Accounts were liquidated, 10,650 ezETH were sold on Balancer pool. Liquidation losses of 25.77 ETH were automatically covered by internal Gearbox reserve fund, no action needed.”
Concurrently, Cork Protocol, one other DeFi platform, explained that the liquidations triggered a considerable sell-off of ezETH beforehand held as collateral. This flood of provide overwhelmed the market, driving the worth of ezETH all the way down to 0.2.
Curiously, these liquidations occurred alongside the discharge of Renzo’s native REZ token, sparking the emergence of Renzo-related phishing scams on social platform X (previously Twitter).
Web3 safety agency Rip-off Sniffer identified two situations the place Renzo customers cumulatively misplaced greater than $500,000 to a malicious allow signature rip-off.
Amidst this market turmoil, dealer czsamsunsb.eth capitalized on the state of affairs, investing 4,099 ETH to amass 4,221 ezETH. This transfer proved profitable, because the dealer earned a outstanding revenue of 121.65 ETH, per Lookonchain’s findings.
What does this imply for LRTs?
Crypto analyst Tommy explained that the depegging represents a major threat across all LRTs, even with withdrawal choices enabled. He famous {that a} depegging occasion in a decentralized change (DEX) pool might happen resulting from momentary imbalances.
Equally, DeFi researcher Ignas warned of potential exacerbation in LRT depegging, primarily if Eigenlayer, the platform the place these tokens function, introduces two key upgrades of slashing and permissionless AVS.
Ignas defined that an AVS malfunction resulting in slashing might cut back restaked ETH balances by a hypothetical 5%. Whereas this might sound manageable for direct Eigenlayer stakers, it might set off substantial disruption to LRT pegs resulting from liquidity issues and subsequent panic-driven mass withdrawals.
He famous that whereas costs might stabilize post-slash, the interim interval might witness harsh liquidations, and the danger of slashing grows as extra AVSes come on-line.
Consequently, he added:
“It’s all FUD right now as slashing won’t derail Eigenlayer but LRTs 1) with low liquidity 2) and are widely accepted as collateral can cause disproportional damage.”
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