Renzo’s liquid restaking token (LRT), ezETH, skilled a major depegging occasion that liquidated hundreds of thousands from “loopers” utilizing the token as collateral on leverage protocols like Gearbox.
In line with 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 outstanding liquid restaking protocol, with over $3 billion price of property locked on its platform, based on 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, offered extra insights into the scenario, saying:
“115 Credit score Accounts had been liquidated, 10,650 ezETH had been offered on Balancer pool. Liquidation losses of 25.77 ETH had been mechanically coated by inner Gearbox reserve fund, no motion wanted.”
Concurrently, Cork Protocol, one other DeFi platform, explained that the liquidations brought on a considerable sell-off of ezETH beforehand held as collateral. This flood of provide overwhelmed the market, driving the value 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 cases 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 scenario, investing 4,099 ETH to amass 4,221 ezETH. This transfer proved profitable, because the dealer earned a exceptional 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 throughout all LRTs, even with withdrawal choices enabled. He famous {that a} depegging occasion in a decentralized change (DEX) pool may happen attributable to non permanent 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 may scale back restaked ETH balances by a hypothetical 5%. Whereas this might sound manageable for direct Eigenlayer stakers, it may set off substantial disruption to LRT pegs attributable to liquidity issues and subsequent panic-driven mass withdrawals.
He famous that whereas costs could stabilize post-slash, the interim interval may witness harsh liquidations, and the chance of slashing grows as extra AVSes come on-line.
Consequently, he added:
“It’s all FUD proper now as slashing received’t derail Eigenlayer however LRTs 1) with low liquidity 2) and are broadly accepted as collateral could cause disproportional harm.”