Renzo’s ezETH token depeg triggers liquidations throughout DeFi platforms

Renzo’s liquid restaking token (LRT), ezETH, skilled a big depegging occasion that liquidated thousands and thousands from “loopers” utilizing the token as collateral on leverage protocols like Gearbox.

In line with information 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 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 outstanding liquid restaking protocol, with over $3 billion price of property locked on its platform, in response to 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, offered extra insights into the scenario, saying:

“115 Credit score Accounts had been liquidated, 10,650 ezETH had been bought on Balancer pool. Liquidation losses of 25.77 ETH had been routinely coated by inner Gearbox reserve fund, no motion wanted.”

Concurrently, Cork Protocol, one other DeFi platform, defined that the liquidations prompted a considerable sell-off of ezETH beforehand held as collateral. This flood of provide overwhelmed the market, driving the worth 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 scenario, investing 4,099 ETH to accumulate 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 defined that the depegging represents a big danger throughout all LRTs, even with withdrawal choices enabled. He famous {that a} depegging occasion in a decentralized alternate (DEX) pool may happen as a consequence of short-term 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 as a consequence of liquidity issues and subsequent panic-driven mass withdrawals.

He famous that whereas costs might 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 gained’t derail Eigenlayer however LRTs 1) with low liquidity 2) and are broadly accepted as collateral could cause disproportional harm.”

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