Depeg Discount. Renzo’s ezETH liquid restaking token (LRT) suffered a monstrous 80% depeg last night! What prompted the dislocation, and how has the token price responded?
Yesterday afternoon, the Renzo Protocol unveiled the final plans for its airdrop, indicating that 5% of the total REZ supply will be distributed to early users who had participated in the first season of their ezPoints Campaign. It was also revealed that the snapshot for the first distribution would be taken this Friday, on April 26.
Following the announcement, ezETH was able to retain its peg for several hours, but the token began gradually depegging at 10 PM EST, reaching discounts as low as 0.22 ETH during the peak of the madness, which lasted for approximately one hour.
Despite possessing a market capitalization of $3.2B, there was only $27M in ETH paired against ezETH in mainnet swapping pools prior to the depeg; this thin liquidity combined with a lack of withdrawals allowed ezETH to reach such a massive dislocation.
The price of ezETH has since rebounded significantly off its bottom, but still remains at a slight discount, potentially reflecting the risk of a future depeg considering that paired ETH liquidity is now even thinner, down to $10M after yesterday’s event.
Renzo’s ezETH is one of the most widely integrated LRTs within DeFi, second only to ether.fi’s eETH. As prices began to tumble yesterday, these protocols were forced to conduct liquidations, worsening the depeg.
For example, leverage farming platform Gearbox lost 55% of its ezETH TVL, meanwhile lending platform Morpho conducted over 150 liquidations on over $25M of ezETH collateral.
While the presence of a second season of the ezPoints Campaign should stymie withdrawals once the April 26 snapshot is taken, there is certainly a non-trivial risk of another ezETH depeg should additional depositors wish to exit given the token’s increasingly thin liquidity.
Other LRT protocols would be prudent to learn from the ezETH depeg and should consider enabling withdrawals, providing multichain liquidity solutions (similar to Renzo's approach through Connext), and maintaining ETH reserves to defend their pegs before announcing an airdrop distribution, which can prompt some depositors to exit.
