- Renzo’s ezETH depeg led to massive liquidations following backlash on its tokenomics.
- The protocol has amended the tokenomics following massive backlash.
On Tuesday, 24th April, Renzo protocol’s liquid restaking token (LRT), ezETH, depegged and hit a low of $688 on Uniswap, sparking a DeFi-wide liquidation worth over $60 million.
Renzo’s ezETH is designed to track and maintain a peg to Ethereum [ETH] price.
However, an overwhelmingly negative reaction from community members to the protocol’s unpopular airdrop and tokenomics announcement swiftly tipped the depeg.
Dexscreener data showed that on Tuesday, the LRT token traded at a massive discount of over 75% against wrapped ETH on Uniswap.
Source: ezETH/WETH on Uniswap
Backlash on Renzo crypto tokenomics
Renzo is the second-largest liquid restaking protocol, which makes its LRT ezETH a big deal, especially to “farmers” aiming for the protocol’s native token.
Through its Season 1 ezPoints program, Renzo managed to surge into the second-largest restaking protocol, boasting over $2.3 billion in TVL (Total Value Locked).
Users increased their positions on ezETH, expecting to get more points and an allocation of the upcoming native token “$REZ.”
However, Renzo’s announcement that only 5% of the REZ supply will be issued to users faced backlash. Another contention was that Binance got a better deal than community users.
One of the disgruntled users noted,
“Binance whales get a 2.5% share by locking BNB/stables for only 6 days – totally risk-free! Plus, Binance invested at a $25M valuation. Meanwhile, we locked $3B in ETH for months just to chase points for a 5% allocation.”
The unhappy users opted to sell their ezETH on secondary markets with thin liquidity since Renzo currently doesn’t allow withdrawals.
The ensuing liquidations mostly affected Renzo’s DeFi integrators, such as Gearbox and Morpho Blue.
Gearbox, in particular, lost about 50% of its ezETH TVL during the depeg, and Morpho also suffered substantial liquidations.
Renzo crypto critics or opportunists?
Reacting to the massive loss, Aave founder Marc Zeller criticized Morpho for taking “shortcuts on risks,”
“When your protocol, by design, takes shortcuts on risk and oracles everything great until suddenly it’s not.”
However, Morpho Labs founder Paul Frambot didn’t let the jibe pass and reminded Zeller of the difference between Morpho and Aave,
“Marc, unlike on Aave, Morpho users are free to choose which assets they use as collateral, the oracle and the Liquidation LTV. Does that mean that all strategies are risk-free? Of course not! Users can take the risk they want.”
On his part, Gearbox’s founder reassured that passive lenders were safe.
Renzo’s ezETH has since resumed a peg at ETH, and the protocol corrected its previous infamous tokenomics.
Nevertheless, some view the depeg as an inherent risk within the LRT ecosystem. A pseudonymous DeFi analyst, Ignas, noted that,
“You think ezETH depeg is bad? We got the first lesson that holding LRTs is not risk-free, but it’ll probably get worse for LRTs.”
This calls for caution, especially when “farming” LRTs through points programs that are not outrightly transparent on token allocation before signing up.