Renzo, the second-largest liquid restaking protocol, has been losing traction over the last few weeks. As of this writing, the decentralized finance (DeFi) app has a total value locked (TVL) of $1.8 billion, down 55% from its record $4 billion registered on May 29.
Meanwhile, Ether.fi, the largest liquid restaking protocol, saw its TVL increase from about $6 billion at the end of May to almost $7 billion on July 24 before correcting to the current level of $6.4 billion.
Restaking platforms like Renzo and Ether.fi provide passive income opportunities for ETH holders by leveraging EigenLayer technology. EigenLayer introduced the concept of restaking, in which staked ETH is repurposed to fuel compatible decentralized services. This provides ETH stakers with higher rewards. Renzo and Ether.fi users have their deposits restaked with EigenLayer while receiving liquid restaking tokens that can be used in DeFi, further maximizing potential returns.
In April 2024, Renzo saw its liquid restaking token, ezETH, depeg from Ethereum when it dropped to as low as $700, triggering liquidations totaling $56 million. The token shortly returned to over $3,000, which was the ETH price at the time, but that was the first red flag to affect Renzo’s reputation.
Additionally, the Renzo community was dissatisfied with the airdrop of REZ, the protocol’s governance token. Initially, ezETH holders, who locked their tokens for four months, were promised 5% of the total REZ supply, compared with 2.5% for participants in Binance’s launchpool, which lasted only 7 days. Eventually, Renzo increased its allocation for ezETH from 5% to 7% in the first airdrop season and another 5% in a subsequent phase.
With the launch of the aidrop at the beginning of May, users have been able to unlock their ezETH, which has probably affected the protocol’s TVL. Outflows from Renzo started to accelerate at the end of June, with tens of millions of USD leaving the protocol each day.
It’s difficult to foresee a recovery, as EigenLayer itself has been hit by massive outflows at the end of July.
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