Renzo’s ezETH falls as low as $700, leading to $56m in liquidations
ezETH traded as low as $700 on some markets on Tuesday, falling by 79% in less than an hour, sparking a liquidation cascade that saw more than 250 users lose around $56 million.
Renzo’s ezETH, currently the second-largest liquid restaking token on the market, is designed to closely track the price of Ether.
The token has since rebounded, trading recently at $3,049, while Ether was trading at $3,127.
However, it fell sharply on Tuesday following the announcement of the tokenomics for Renzo’s governance token, REZ, which left many investors disappointed.
Since January, Renzo has been rewarding users who mint ezETH with points. The programme fueled the growth of the protocol, which reached over $3 billion in deposits. The points will convert into tokens that can be claimed on May 2.
A key issue for users is the distribution ratio of the upcoming REZ airdrop designated for ezETH holders. Specifically, ezETH holders are set to receive 5% of the total REZ supply, compared with 2.5% for participants in Binance’s launchpool.
This discrepancy has caused frustration among ezETH users, who feel that their four-month commitment to holding ezETH merits a greater reward than what is being offered to those participating in Binance’s seven-day launchpool.
Moreover, while holding ezETH benefits Renzo’s ecosystem directly, participation in the Binance launchpool — where users deposit fdUSD and BNB to earn REZ — does not offer clear advantages to Renzo or its ecosystem.
Trading of REZ is expected to go live on April 30.
This perceived inequity in the distribution of REZ tokens has led to a sell-off of ezETH on the open market.
Notably, Renzo has not permitted withdrawals from the protocol, preventing users from exchanging their ezETH directly for the backing Ether.
The only exit strategy is to sell ezETH for another asset, which has contributed to its price decline. The decrease in price has triggered liquidations among users who leveraged their holdings to maximise point earnings in anticipation of the airdrop.
A common tactic among traders has been to borrow as much ezETH as possible to accumulate points, hoping for a profitable airdrop. As prices fell, many of these leveraged positions were liquidated, exacerbating the drop in ezETH’s value.
On Gearbox, a protocol that allows up to 10x leverage on ezETH, 115 users were liquidated, resulting in a loss of 10,650 ezETH, valued at about $33 million. Similarly, on Morpho — a protocol favoured by traders for “looping” deposits to gain leveraged exposure — about $23 million worth of assets from 146 users were liquidated.
The official Renzo team hasn’t made a statement about ezETH’s fall from its peg or the frustrations of its users.
Ryan Celaj is a data correspondent at DL News. Got a tip? Email him at [email protected].
