Renzo Protocol’s liquid restaking token (LRT), ezETH, took a pointy low 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 select to tackle publicity to extremely leveraged ETH-linked belongings to extend their possibilities of receiving a share of the mission’s native token at launch.
Nevertheless, the announcement was met with important backlash because it emerged that solely 5% of Renzo’s REZ token provide was reserved for the preliminary airdrop (regardless of the unfair use of an out-of-scale pie chart). The picture has now been adjusted.
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One other level of competition was the truth that ‘farmers’ of REZ’s Binance launch pool would obtain 2.5% of the tokens two days sooner than ezETH holders, which might give them sufficient time to dump their stake earlier than the airdrop recipients.
The frustration amongst ezETH holders led to many wanting to cut back their positions.
The depeg was a results of merchants trying to exit their holdings of ezETH, which at the moment doesn’t enable direct withdrawals into the underlying belongings. As a substitute, their solely possibility 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 utilizing ezETH as collateral had been mechanically settled on the DeFi lending platforms. This collateral sell-off additional depressed the ezETH worth, making a optimistic suggestions loop ensuing within the liquidation of extra positions.
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The value of ezETH briefly dropped to $700 on Uniswap. Nevertheless, the lenders’ worth oracle, which averages costs throughout markets, reported a a lot smaller depeg. This resulted in solely merchants with leverage of 5x or extra being liquidated.
Liquidations at Morpho and Gearbox (roughly 10,000 ezETH every) amounted to over $65 million, reportedly leading to protocol losses of $34,000 and $83,000 respectively. DeFi safety agency Peckshield famous how one unfortunate particular person misplaced about $90,000 when his $900,000 place was liquidated.
One other consumer misplaced nearly $300,000 to a phishing rip-off impersonating the official Renzo X (previously Twitter) account.
The incident opened a debate in regards to the objective of DeFi lending platforms, as Aave board consultant Marc Zeller accused Morpho and its threat advisors Gauntlet of not doing sufficient to guard its customers.
Morpho’s Paul Frambot responded that its method is completely different from Aave’s, permitting customers to set their very own threat parameters somewhat than managing components corresponding to collateral belongings and loan-to-value ratios by way of DAO governance.
It’s not the primary time the 2 have clashed. Simply over two months have handed for the reason that sudden departure of Aave’s longtime threat advisor Gauntlet, who joined Morpho just a few days later.