Renzo Protocol’s liquid restaking token (LRT), ezETH, suffered a pointy depeg in a single day, in response to an unpopular and deceptive tokenomics announcement.
LRTs are common with so-called ‘airdrop hunters’ within the decentralized finance (DeFi) sector. Many choose to tackle extremely leveraged publicity to the ETH-pegged belongings to extend their possibilities of receiving a portion of the mission’s personal token upon launch.
Nevertheless, the announcement confronted important backlash because it revealed that simply 5% of Renzo’s REZ token provide was put aside for the preliminary airdrop (regardless of the disingenuous use of a not-to-scale pie chart). The picture has since been adjusted.
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One other level of rivalry was the truth that ‘farmers’ of REZ’s Binance launchpool would recieve 2.5% of tokens two days sooner than ezETH holders, giving loads of time for them to dump their share earlier than the airdrop recipients.
The frustration amongst ezETH holders led to many transferring to unwind their positions.
The depeg was a results of merchants seeking to exit their holdings of ezETH, which doesn’t presently enable for direct withdrawals into the underlying belongings. As a substitute, their solely choice was reportedly by way of a $200 million liquidity pool on Blast, an Ethereum layer-two community.
In what is called a ‘liquidation cascade,’ the leveraged positions that used ezETH as collateral had been robotically unwound on DeFi lending platforms. This sell-off of the collateral additional depressed the ezETH worth, making a optimistic suggestions loop and ensuing within the liquidation of extra positions.
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The value of ezETH briefly dropped as little as $700 on Uniswap. Nevertheless, the worth oracle by lenders, which averages costs throughout numerous markets, reported a a lot smaller depeg. This had the impact of solely liquidating merchants that had been 5x leveraged or extra.
Liquidations throughout Morpho and Gearbox (round 10,000 ezETH every) summed over $65 million, reportedly leading to protocol losses of $34k and $83k, respectively. DeFi safety agency Peckshield famous how one unfortunate particular person misplaced round $90,000 when their $900,000 place was liquidated.
One other person misplaced virtually $300,000 to a phishing rip-off impersonating the official Renzo X (previously Twitter) account.
The incident opened a debate over the aim of DeFi lending platforms as Aave governance delegate Marc Zeller accused Morpho, and its danger advisors Gauntlet, of not doing sufficient to guard its customers.
Morpho’s Paul Frambot responded that its method is totally different to that of Aave, permitting customers to set their very own danger parameters slightly than handle components resembling collateral belongings and loan-to-value ratios by way of DAO governance.
This isn’t the primary time the 2 have butted heads. Simply over two months have handed because the sudden departure of Aave’s long-time danger advisor Gauntlet, which then joined Morpho days later.
