April 24, 2024: $ezETH Come, $ezETH Go... π₯π
DeFi proves resilient in tumultuous $ezETH depeg
Weβve historically been a bit wary of LRTs and generally stayed away from discussing them often. Mostly for the very petty reason that our only article on the subject failed to do numbers and weβre still saltyβ¦
We chalked it up to the fact that we assume most of our readers intuitively seemed to grok that a photocopy of a photocopy might tend to lose fidelity and didnβt aggressively chase the sector.
Overnight, we got our first taste of drama in the LRT markets, with Renzoβs $ezETH depegging briefly but catastrophically.
It all started with an infographic⦠for which the Renzo Protocol team perhaps made the mistake of assuming the crypto community lacked experience at studying charts
It turns out undermining your credibility is as βEZβ as pie chart Photoshopsβ¦
The below pie chart, a bit more data-driven, shows off the stakes: Renzoβs $ezETH was the second largest LRT in the market.
Or⦠since nobody really likes pie charts⦠the same numbers highlighting the context of the hockey stick growth of the LRT space.
Last night saw this particularly ugly chartβ¦
Butβ¦ letβs not concern ourselves so much with the LRT itself. The existence of scams, ponzis, and fly-by-night points farms will always exist if we also allow crypto to remain open and permissionless.
The better question is how the slice of crypto that attempts to be upstanding and resilient performed. Can DeFi broadly survive catastrophic collapses within its infrastructure and keep on ticking?
Curve
The Curve pool for $ezETH is quite small, but shows off how the depegged played out with just $3MM of liquidity.
Despite the thin liquidity, this land the pool into the daily top 5 by raw volumeβ¦
The $36MM in volume on $3.2MM TVL is quite a sightβ¦ 1000% liquidity utilization is nothing to sneeze atβ¦
We doubt too many builders fret too much about liquidity pool performance in down time, but worth flagging how well a relatively shallow Curve pool performed (20% depeg) relative to primary liquidity sources. Whatever some may think, occasionally superior DEX tech does matter⦠Curve v1 and Curve v2 pools would not suffer such sudden 80% depegs due to price being out of band.
Incidentallyβ¦ nobody had yet created any Curve Llama Lend markets with restaking pools, so thankfully no users suffered here. However, it may have been theoretically possible to utilize Llama Lend in such a situation without terribly catastrophic results. The nitty-gritty details would involve using an appropriate half-life on the EMA oracleβ¦ wide enough to avoid temporary depegs but narrow enough to catch permanent depegs. In this case, it proved to be the former, as the token somewhat repegged (though not 1:1). Itβs interesting in theory, and now even has a little experimental data that could be used for simulations, but thankfully for users was not yet put in practice.
Gearbox
Gearbox leveraging, which relied on the spot oracles, saw a handful of liquidations and thankfully no bad debt or interruption to the protocolβs functioning. The team may (subject to governance) reimburse some of their losses via funds from liquidation.
f(x) Protocol
Most remarkably, f(x) Protocol deserves hefty praise for its $rUSD stablecoin, which was most at risk being backed by liquid restaking tokens.
In this case, $rUSD passed with flying colors
You can draw your own takeaways from this. For ours, we know weβd likely never be interested in what we perceive as a risky LRT market. Yet if their LRT stablecoin can survive a stress test of this magnitude, we might have relatively fewer qualms about their LST or WBTC backed stablecoin.
Prisma
Not that many people are paying much attention to Prisma lately, but notable that the peg of the $ULTRA stablecoin (backed by LRTs) also coasted without incident.
Another day, another traumatizing event in DeFi. As our space matures, thankfully the hits are packing less of a punch. We hope you all are safe from the latest turbulence!