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BraveNewDeFi
@bravenewdefi
The recent ezETH depeg is a good reminder that LRTs can depeg if withdrawals are not enabled. This is the same risk that was present for LSTs before withdrawals were enabled after the merge. Be sure to evaluate the oracles in use if you're going to use leverage https://twitter.com/0xriptide/status/1782995431808487462
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BraveNewDeFi
@bravenewdefi
Afaik, Etherfi is the only LST protocol that allows withdrawals. The ezETH isn't the first time an LST has depegged either. pufETH depegged earlier this year, but the lack of available leverage prevented the same scenario we saw this week with ezETH. Mind the peg and plan accordingly when deploying funds.
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Vova 🎩
@vova
Did you find any info about liquidations? It seems that ezETH points + lots of DeFi integrations created: - high leverage, using it as collateral - shallow liquidity on too many DEXes with points/multipliers So redemptions probably wouldn’t have helped in short-term.
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BraveNewDeFi
@bravenewdefi
Having redemptions enabled allows for arbitrage where bots can buy an LST/LRT below peg and redeem it for it's 1:1 value. This is why stETH hasn't depegged by more than 0.5% since withdrawals were enabled. Yes, low liquidity vs. high rates of ezETH integrations in lending markets was a contributing factor, no doubt.
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BraveNewDeFi
@bravenewdefi
But this also is the reason why markets like Aave v3 employ caps for certain markets. If you ignore the available liquidity, you can run into situations like we saw in Aave v2 markets when Mich's CRV-backed loan was close to liqudation and liquidity on DEXes/CEXes had dropped since CRV was listed as a collateral asset.
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