On April 24, the DeFi market suffered a major blow when the decoupling of the Liquidity Recollateralization Token (LRT) ezETH shocked the entire industry. It is estimated that the loss caused by this incident exceeded 65 million US dollars, which triggered a wide discussion on the risk management capabilities of DeFi platforms.

ezETH is part of Renzo Protocol, which aims to attract DeFi users to get early access to its native token REZ. However, Renzo Protocol's changes to token economics have sparked dissatisfaction in the community, especially the decision on the distribution of REZ token airdrops. Users expressed dissatisfaction with the share allocated to small holders and criticized the distribution structure for being biased towards specific platform users.

In the event of ezETH’s decoupling, the market is concerned that users on specific platforms who received a larger share of REZ before the ezETH airdrop may sell their tokens before the airdrop, increasing market pressure.

These concerns soon became a reality, and disappointed holders began to sell ezETH in large quantities. The exchange of ezETH was mainly carried out through a DEX liquidity pool on the Ethereum Layer 2 network, which exacerbated the sell-off and decoupling.

The decoupling event triggered a chain reaction in DeFi lending protocols, and 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 abnormal trading prices for ezETH, the actual degree of decoupling was not as serious as rumored.

Even so, liquidation operations on platforms including Morpho and Gearbox still caused losses of more than $65 million, and some investors suffered significant losses.

According to a report by DeFi security company Peckshield, a position worth $900,000 was liquidated, with a loss of about $90,000. At the same time, some traders took advantage of price differences to make profits. Lookonchain's report showed that a trader made more than $396,000 in profits through price differences in a short period of time.

The decoupling of ezETH not only caused huge economic losses to investors, but also once again reminded market participants of the risks brought by liquidity re-collateralization 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. #ezETH  #脱钩