Renzo Protocol’s liquid restaking token (LRT) ezETH experienced depeg on Wednesday amidst the controversial REZ native token airdrop.

The incident caused ezETH to lose 1:1 parity on its underlying asset, Ethereum (ETH).

ezETH’s price experienced a momentary fall to as low as $688 on the decentralized exchange (DEX) Uniswap. However, the price of ezETH has recovered at the time of writing.

The cause of the incident was likely due to a large-scale ezETH sell-off following the end of the season 1 airdrop on Renzo Protocol.

“Users want to get their ETH back for farming LRT or other protocols,” Tommy, an investor at Crypto.com Capital, explained.

Read more: Ethereum Restaking: What Is It And How Does It Work?

Moreover, Tommy emphasized that the ezETH depeg incident is a risk that all LRTs must be aware of.

The ezETH depeg caused mass liquidations in several leveraged protocols such as Gearbox and Morpho Labs. The liquidations happened because several users repeatedly used their LRT as collateral to borrow ETH.

“115 Credit Accounts were liquidated, 10,650 ezETH were sold on Balancer pool. Liquidation losses of 25.77 ETH were automatically covered by internal Gearbox reserve fund, no action needed,” 0xmikko, founder of Gearbox, said.

Renzo is the second largest liquid restaking protocol, with total value locked (TVL) currently around $3.21 billion. Renzo’s TVL has recorded an approximately 125% increase in the past 30 days, according to DefiLlama data.

Interest in the Renzo protocol surged after crypto exchange Binance launched the Launchpool program for its native token Renzo (REZ) on Tuesday. Holders of BNB and First Digital USD (FDUSD) can stake their assets to farm REZ tokens for six days until April 29 before the REZ’s listing on Binance on April 30.

Renzo allocated 10% of the total supply of 10 billion REZ tokens for the airdrop. Meanwhile, 2.5% of the token supply is allocated to Binance Launchpool.

However, the season 1 airdrop only reached 5% of the total REZ token supply. This means that the airdrop allocation for farming on Renzo Protocol is only 50% greater than that for Binance Launchpool.

In detail, 2% of the 5% (or 0.1% of the total REZ token supply) for the season 1 airdrop was allocated to Milady and SchizoPosters non-fungible token (NFT) holders.

The controversy peaked when Binance scheduled the Launchpool to end on April 29 and would initiate REZ token trading on April 30.

Read more: 9 Cryptocurrencies Offering the Highest Staking Yields (APY) in 2024

Such an arrangement allowed participants of Binance Launchpool to sell the REZ they got two days earlier than parties farming on the Renzo Protocol. This contrasts with Renzo Protocol users, who could only claim their airdrop on May 2.

However, on Thursday morning’s latest development, Renzo Protocol, updated the REZ token airdrop claim time and tokenomics. Airdrop claim time becomes 1 hour earlier before trading on Binance. Meanwhile, season 1 airdrop allocation increased to 7%.

The post Renzo Protocol Controversy: ezETH Loses Peg, Airdrop Sparks Debate appeared first on BeInCrypto.

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