Renzo recently announced the issuance of tokens, but it has caused controversy. In response to this, the founder of Solend stated that the only way to address the LST risk is to set safe parameters and use safe leverage. This article is sourced from Rooter and is compiled, translated, and written by PANews.
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Renzo adjusts the airdrop ratio to 12% under community pressure, sarcastically asking if this is still Web3?
Background:
Binance’s new Launchpool: Renzo is a liquidity re-staking protocol. What is Renzo’s tokenomics and REZ token economy? BNB once reached a high of $620.
Recently, the “centralization” of Renzo’s tokenomics has sparked controversy in the crypto community. Renzo’s LRT token, ezETH, has been heavily sold, leading to an unpegging. Rooter, the founder of Solend, posted on the X platform to voice his opinion on the matter. 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 unpeg, and it happens almost every few weeks. The following will introduce the background of this incident, why good transactions can turn bad, and how to deal with LST risks.
ezETH is Renzo Protocol’s liquidity re-staking token (LRT) and a “magnet” for rewards for miners. Renzo achieved TVL growth from 0 to $3 billion in just 4 months.
Due to strong doubts about its tokenomics in the market, ezETH became unhooked. As ezETH cannot be redeemed yet, low-risk arbitrage cannot be used to restore the peg.
Value worth tens of millions of dollars of ezETH was sold off, resulting in massive liquidations. The following images show the liquidations on Gearbox and the sharp decline in TVL of ezETH on Morpho Labs.
But there is nothing new under the sun, and history often repeats itself. Similar incidents also happened to 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 unpegging of mSOL was caused by a whale selling $8 million worth of mSOL. Just last week, multiple LSTs unpegged, leading to erroneous liquidations and bad debts in marginfi.
Solend’s pricing method for LSTs can avoid most of these issues, but marginfi has harshly criticized Solend’s method, and marginfi suffered the consequences after the controversy. However, this method only applies to SOL LSTs. It may take several more months for ezETH to be redeemable, so it is difficult to determine whether the unpegging is a reasonable devaluation or simply due to the unpredictable market.
There is no perfect way to eliminate risks completely. Ultimately, it comes down to setting safe parameters and using safe leverage. It is indeed bad to give up market share to competitors, but ensuring the safety of funds is more important.
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