Renzo’s ezETH token depeg triggers liquidations across DeFi platforms

Renzo’s Liquid Restaking Token (LRT), ezETH, experiences a significant depegging event that liquidates millions of dollars from “loopers” who use the token as collateral for leveraged protocols such as Gearbox did.

according to data In an announcement from CoinMarketCap, the value of the digital asset plummeted to a low of $2,755, but has recovered to its current level of $3,178 at the time of writing.

In particular, decentralized exchange Uniswap witnessed a more severe depegging of ezETH. drop Liquidity issues drove it to a low of $700.

Renzo is a prominent liquid restaking protocol with over $3 billion in assets locked on its platform, according to DeFillama. data.

liquidation is popular

DeFi protocol Gearbox confirmed that Depeg led to the liquidation of several credit accounts.

Protocol founder 0xmikko provided further insight into the situation. saying:

“115 credit accounts were liquidated and 10,650 ezETH were sold in the balancer pool. The liquidation loss of 25.77 ETH will be automatically covered by Gearbox’s internal reserves, so no action is required.”

At the same time, another DeFi platform, Cork Protocol, explained As a result of this liquidation, ezETH, which was previously held as collateral, was sold significantly. This flood of supply overwhelmed the market, causing the price of ezETH to drop to 0.2.

Interestingly, these liquidations coincided with the release of Renzo’s native REZ token, leading to the emergence of Renzo-related phishing scams on social platform X (formerly Twitter).

Web3 Security Company Scam Sniffer identified Two cases where Renzo users lost more than $500,000 cumulatively to malicious permit signing fraud.

Amid this market turmoil, trader czsamsunsb.eth took advantage of the situation and invested 4,099 ETH to get 4,221 ezETH. According to Lookonchain, this move proved to be profitable as this trader made an amazing profit of his 121.65 ETH. findings.

What does this mean for LRT?

Crypto Analyst Tommy explained Depegging means significant risk across all LRTs, even when withdrawal options are enabled. He pointed out that depegging events for decentralized exchange (DEX) pools can occur due to temporary imbalances.

Similarly, DeFi researcher Ignace said, warned There is a potential worsening of LRT depegging, primarily if Eigenlayer, the platform on which these tokens operate, introduces two significant upgrades: Slash and permissionless AVS.

Ignace explained that an AVS malfunction leading to a slash could hypothetically reduce re-staked ETH balances by 5%. While this may seem manageable for Eigenlayer’s direct stakers, liquidity concerns and subsequent panic-driven mass withdrawals could cause significant disruption to the LRT peg.

He noted that although prices may stabilize after the price cut, there could be severe liquidation in the interim period, and the risk of price cuts increases as more AVS come online.

As a result, he added:

“It’s all FUD for now as the slash won’t derail Eigenlayer. But LRT could cause disproportionate damage because 1) it’s illiquid and 2) it’s widely accepted as collateral. .”

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