The DeFi field has another token decoupling incident, and the ezETH project has suffered heavy losses.

On April 24, the DeFi market suffered a major blow, and the decoupling of Liquidity Rehypothecation Token (LRT) ezETH shocked the entire industry. The incident resulted in losses estimated at more than $65 million, sparking widespread discussion about the risk management capabilities of DeFi platforms.

ezETH is part of the Renzo Protocol and aims to attract DeFi users to get early exposure to its native token REZ. However, Renzo Protocol’s changes to token economics have sparked dissatisfaction in the community, especially the decision regarding the REZ token airdrop distribution. Users expressed dissatisfaction with the shares allocated to small holders and criticized the allocation structure for being skewed toward specific platform users.

In the ezETH decoupling incident, the market was worried that users on a specific platform who obtained a larger share of REZ before the ezETH airdrop might sell their tokens before the airdrop, adding to market pressure.

These fears soon became reality, and disappointed holders began to sell ezETH en masse, and the exchange of ezETH was mainly through a DEX liquidity pool on the Ethereum second-layer network, which exacerbated the sell-off and decoupling.

This decoupling event triggered a chain reaction in DeFi lending protocols. Leveraged positions using ezETH as collateral were automatically liquidated due to price fluctuations, further exacerbating the selling pressure in the market. Although some DEXs briefly showed ezETH trading price anomalies, the actual degree of decoupling was not as severe as rumored.

Even so, liquidation operations on platforms including Morpho and Gearbox resulted in losses of more than $65 million, with some investors suffering significant losses as a result.

According to a report from DeFi security firm Peckshield, a position worth $900,000 was liquidated for a loss of approximately $90,000. At the same time, some traders took advantage of the price difference and made profits. Lookonchain reports that one trader made more than $396,000 in profit from price differences in a short period of time.

The decoupling incident of ezETH not only brought huge economic losses to investors, but also once again reminded market participants of the risks caused by liquidity rehypothecation of tokens. As the DeFi market continues to develop, how to better manage and control such risks will become a challenge that investors and regulators need to face together.

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