What‘s the Deal with ezETH Depeg in Binance’s New REZ Launchpool？ Why Did the Price Drop to $700, Which Should Be the Same as...

Renzo Protocol's liquid restaking (LRT) token ezETH experienced a sharp depeg overnight. This drop was a response to an unpopular and misleading tokenomics announcement that disappointed many in the decentralized finance (DeFi) industry.

LRTs have gained popularity among 'airdrop hunters' in the DeFi sector. Many of these investors have highly leveraged exposure to the platforms' ETH-pegged assets, hoping to increase their chances of getting a share of the project's own token when it launches.

However, the announcement faced significant backlash as Renzo revealed that only 5% of the REZ token supply had been reserved for the initial airdrop.

The fact that 'farmers' in REZ's Binance launch pool will receive 2.5% of the tokens two days before ezETH holders also contributed to the discussions. This gave them plenty of time to divest their shares before the airdrop recipients, leading to widespread disappointment among ezETH holders.

As a result, many ezETH holders began to reduce their positions. The depeg occurred as traders attempted to exit ezETH holdings, which currently do not allow direct withdrawals to underlying assets. Their only option was reportedly a $200 million liquidity pool on Blast, an Ethereum layer-two network.

This led to a 'liquidation cascade' where leveraged positions using ezETH as collateral were automatically resolved on DeFi lending platforms. This selling of collateral further reduced the price of ezETH, creating a positive feedback loop and causing more positions to be liquidated.

The price of ezETH on Uniswap dropped to $700 for a short time. However, the credit agencies' price oracle, which averages prices across various markets, reported a much smaller decline. Only traders with 5x or more leverage were liquidated.

The decrease in ezETH price in CoinMarketCap records.

Liquidations on Morpho and Gearbox (approximately 10,000 ezETH each) totaled over $65 million, while protocol losses were reported to be $34 thousand and $83 thousand respectively. DeFi security firm Peckshield stated that one unlucky person lost approximately $90,000 when his $900,000 position was liquidated.

Another user lost almost $300,000 due to a phishing scam impersonating the official Renzo X (formerly Twitter) account.

*This is not investment advice.