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 response to information from CoinMarketCap, the digital asset’s worth plunged to a low of $2,755 earlier than recovering to its present stage of $3,178 as of press time.
Notably, decentralized alternate 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 belongings locked on its platform, in keeping with DeFillama information.
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 score Accounts have been liquidated, 10,650 ezETH have been offered on Balancer pool. Liquidation losses of 25.77 ETH have been routinely coated by inner Gearbox reserve fund, no motion wanted.”
Concurrently, Cork Protocol, one other DeFi platform, defined that the liquidations precipitated a considerable sell-off of ezETH beforehand held as collateral. This flood of provide overwhelmed the market, driving the value of ezETH right down to 0.2.
Apparently, 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 recognized 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 accumulate 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 defined that the depegging represents a major danger throughout all LRTs, even with withdrawal choices enabled. He famous {that a} depegging occasion in a decentralized alternate (DEX) pool may 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 may scale back restaked ETH balances by a hypothetical 5%. Whereas this may appear manageable for direct Eigenlayer stakers, it may set off substantial disruption to LRT pegs resulting from 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 danger 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 extensively accepted as collateral could cause disproportional injury.”
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