Liquidation Surge Follows Renzo's ezETH Token Brief Crash

By: Isha Das

Renzo's liquid restaking token (LRT), ezETH, experienced a sizeable depegging event which, in turn, triggered rampant liquidations across decentralized finance (DeFi) platforms. This event had liquidated millions from users who had utilized these tokens as their collateral on leverage protocols, such as Gearbox. The value of this digital asset plunged dramatically to a low of $2,755 before making a recovery to its current value of around $3,178, according to data from CoinMarketCap.

Decentralized exchange Uniswap experienced an even more drastic depegging of ezETH, as its value plummeted to as low as $700, which has been attributed to liquidity challenges. Renzo is a major liquid restaking protocol with assets worth over $3 billion locked into its platform, according to DeFillama data. The negative impact of the depegging of ezETH led to an influx of these tokens being sold off, overwhelming the market and driving the value down to 0.2. Coinciding with the release of Renzo's native REZ token, phishing scams related to Renzo came into life.

The depegging of ezETH is posing a considerable risk across all LRTs. DeFi researcher Ignas has pointed out this risk could get worse with the introduction of slashing and permissionless AVS on Eigenlayer, the platform where these tokens operate. While noting that slashing alone won't unhinge Eigenlayer, this uncertainty is caused by the potential of LRTs with low liquidity, which are widely accepted as collateral, to inflict disproportionate damage.