Renzo’s Restaked ETH Depegs to $700 As Season 1 of Airdrop Ends

The Ethereum re-staking token issued by Renzo, the second-largest restaking protocol by assets, lost its peg to ETH, causing liquidations across at least two decentralized finance (DeFi) platforms.

Renzo’s ezETH dropped to as low as $700 in early Wednesday EST, before quickly bouncing back to $3,200. The token has been edging lower and currently trades for $3,196, while ETH trades at $3,204, as of 11am EST.

The de-peg followed the end of the first phase of Renzo’s airdrop.

The move highlights risks associated with the nascent liquid restaking sector.

Restaking refers to users taking tokens that represent ETH that’s been staked in the Ethereum mainnet, and using those tokens to secure the networks of applications built on top of restaking protocol EigenLayer, in search of extra yield.

Renzo Protocol is the second-largest liquid re-staking protocol, holding $3.3 billion in total value locked (TVL) according to DefiLlama. Liquid re-staking protocols issue tokens that represent ETH staked in EigenLayer.

Post-Airdrop Dump

According to the pseudonymous crypto investor Tommy, the sell-off and subsequent de-pegging was caused by users withdrawing their staked ETH from Renzo, and moving it to other protocols.

“Sell-off likely caused by the conclusion of Season 1 Airdrop, users want to get back ETH to farm other LRT/protocols,” he wrote.

Renzo Protocol had attracted attention after its newly launched token, REZ, was added to Binance launch pool on April 23, the same day the protocol announced its incoming airdrop.

Renzo allocated 10% of $REZ for its airdrop, with 5% allocated during its Season 1.

Cascading Liquidations

The sell-off led to liquidations across multiple protocols, such as Gearbox and Morpho Blue.

According to 0xmikko.eth, 115 credit accounts on Gearbox Protocol were affected, equivalent to 10,650 ETH, or $32 million. These got sold on Balancer’s pool triggering the mass liquidations.

The pseudonymous Tommy also indicated that “loopers” (users who use liquid restaking tokens as collateral to borrow ETH and create leverage) suffered a large portion of today’s losses.