Dramatic 6-week period results in a significant 55% decrease in TVL for Renzo
In the world of decentralized finance (DeFi), Renzo, a liquid restaking protocol, has been experiencing a decline in popularity and capital outflows. The reason for this shift can be attributed to a significant decrease in yield premiums on restaking strategies, making the protocol less attractive to investors.
Renzo, which currently has a total value locked (TVL) of $1.8 billion, launched its liquid restaking token, ezETH, at the beginning of May. The airdrop was designed to encourage users to unlock their ezETH tokens, an event that may have impacted Renzo's TVL. However, the yield premiums offered by Renzo's restaking strategies have diminished significantly, reducing their allure compared to native staking.
The depeg of ezETH from Ethereum in April 2024 saw its price drop as low as $700. This depeg triggered liquidations totaling $56 million. Initially, ezETH holders who locked their tokens for four months were promised 5% of the total REZ supply, a higher reward compared to participants in Binance's launchpool. However, Renzo later increased its allocation for ezETH, offering 7% in the first airdrop season and another 5% in a subsequent phase.
The decrease in yield premiums has led to a reduction in demand for ezETH, causing its price to weaken. This trend is reflected in the diminished market sentiment towards the token. Outflows from Renzo started to accelerate at the end of June, with tens of millions of USD leaving the protocol each day. As a result, Renzo's TVL has decreased by 55% from its record $4 billion, which was reached on May 29.
Ether.fi, another liquid restaking protocol, has not been immune to these trends. Its TVL, which was approximately $6 billion at the end of May, has seen some fluctuations. Ether.fi's TVL reached almost $7 billion on July 24 before correcting to its current level. Despite this, Ether.fi's TVL remains substantial at $6.4 billion.
Renzo and Ether.fi are both DeFi apps that provide passive income opportunities for ETH holders using EigenLayer technology. EigenLayer introduced the concept of restaking, where staked ETH is repurposed to fuel compatible decentralized services, offering higher rewards. However, the diminishing yield premiums and increased risks associated with restaking have led to a decrease in the attractiveness of these protocols.
This trend aligns with the broader cooldown in the restaking sector after a burst of speculative interest, despite the Ethereum staking ecosystem's overall growth and institutional adoption continuing. As the market adjusts to the new realities, it will be interesting to see how Renzo and other liquid restaking protocols adapt and evolve to regain their lost traction.
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