Renzo’s liquidity re-staking token (LRT), ezETH, experienced a significant depegging event that resulted in the liquidation of millions of dollars from “loopers” using the token as collateral on leveraged protocols such as Gearbox.
According to data from CoinMarketCap, the value of the digital asset fell to a low of $2,755 before recovering to $3,178 as of press time.
In particular, the decentralized exchange Uniswap saw the value of ezETH fall even more severely. dropping Down to $700 due to liquidity issues.
Renzo is a popular liquidity resale protocol with over $3 billion in assets locked on its platform, according to DeFillama data.
abundant clearing
DeFi protocol Gearbox has confirmed that several credit accounts have been liquidated due to depeg.
The protocol’s founder, 0xmikko, provided more insight into the situation. Proverb:
“115 credit accounts were liquidated and 10,650 ezETH were sold from the balancer pool. The liquidation loss of 25.77 ETH will be automatically covered by internal Gearbox reserve funds, so no action is required.”
At the same time, Cork Protocol, another DeFi platform, explained that the liquidation resulted in the sale of a significant portion of ezETH previously held as collateral. This flood of supply overwhelmed the market, driving the price of ezETH down to 0.2.
Interestingly, these liquidations coincided with the launch of Renzo’s native REZ token, sparking the emergence of Renzo-related phishing scams on social platform X (formerly Twitter).
Web3 security company Scam Sniffer has identified two cases in which Renzo users lost a cumulative total of more than $500,000 due to malicious permit signing fraud.
Amid this market turmoil, trader czsamsunsb.eth took advantage of the situation and invested 4,099 ETH to acquire 4,221 ezETH. According to Lookonchain’s research, this move was profitable, as the trader earned an impressive profit of 121.65 ETH.
What does this mean for LRT?
Cryptocurrency analyst Tommy explained Depegging represents a serious risk across all LRTs, even when the withdrawal option is enabled. He noted that temporary imbalances can cause depegging events in decentralized exchange (DEX) pools.
Likewise, DeFi researcher Ignas warned There is a potential worsening of LRT depegging if Eigenlayer, primarily the platform on which these tokens operate, introduces two major upgrades: slashing and permissionless AVS.
Ignas explained that an AVS malfunction leading to a drawdown could hypothetically reduce the re-staked ETH balance by 5%. While this may seem manageable for direct Eigenlayer stakers, it could cause significant disruption to the LRT peg due to liquidity issues and subsequent panic-driven mass withdrawals.
He pointed out that while prices may stabilize after a slash, the intermediate period could witness harsh liquidations and the risk of a slash increases as more AVS come online.
As a result, he added:
“Slashing won’t derail Eigenlayer, but it’s all FUD for now because 1) it’s illiquid and 2) LRT, which is widely accepted as collateral, could cause disproportionate damage.”