Renzo recently announced the issuance of tokens, but it has sparked controversy. In response, the founder of Solend stated that the only way to address LST risks is to set secure parameters and use secure leverage. This article is sourced from Rooter and compiled, translated, and written by PANews.
Tweet, compiled, translated, and written by PANews.
(Summary: Renzo increased the airdrop ratio to 12% under community pressure, sarcastically asking if this is still Web3?)
(Background: What is Renzo, the new Launchpool on Binance? REZ token economics? BNB temporarily rose to $620.)
Recently, Renzo’s token economics, which is considered too centralized, has caused controversy in the crypto community. Renzo’s LRT token ezETH experienced a large amount of selling, leading to a detachment from its peg. Rooter, the founder of Solend, posted an article on X platform to address this issue. The following is the full content:
This incident is not a black swan event, nor is it a tail event. In this regard, it is common for LST to detach from its peg, and it happens almost every few weeks. The following will introduce the origin of this incident, why good trades go bad, and how to deal with LST risks.
ezETH is Renzo Protocol’s token for liquidity re-collateralization (LRT) and is also a “magnet” for rewards accumulation by miners. Renzo achieved a TVL growth from 0 to $3 billion in just 4 months.
Due to strong doubts about its token economics in the market, ezETH became unpegged. Since ezETH cannot be redeemed, low-risk arbitrage cannot be used to restore the peg.
Millions of dollars worth of ezETH were sold off, and there was a massive liquidation. The following images show the liquidation on Gearbox and the sharp decline in TVL of ezETH on Morpho Labs.
But there is nothing new under the sun, and history always repeats itself. Similar incidents occurred with stETH in 2022, leading to the collapse of 3AC and triggering a domino effect that completely reshaped the crypto market.
This situation has also occurred many times on Solana (but on a much smaller scale). In December 2023, the sale of $8 million worth of mSOL by a whale led to the detachment of mSOL. Just last week, multiple LSTs detached, resulting in error liquidations and bad debts on marginfi.
Solend’s pricing method for LSTs can avoid most of these problems, but marginfi has criticized Solend’s method harshly and suffered the consequences. However, this method is only applicable to SOL LSTs. It may take several months for ezETH to be redeemed, so it is difficult to determine whether the detachment is a reasonable devaluation or simply due to the unpredictable market.
There is no perfect way to eliminate risks completely, but ultimately, it comes down to setting secure parameters and using secure leverage. It is indeed unfortunate to give up market share to competitors, but ensuring the safety of funds is more important.
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