Liquid Restaking (LRT) has emerged as one of the most popular narratives of the season. Renzo Protocol is the second largest LRT with 1 million ETH staked and 33.5% market share (Etherfi has 37.9% share). With respect to Total Value Locked (TVL), Renzo stands out with a Total Value Locked (TVL) of $3.099 billion, ranking it 2nd in the liquid staking arena. This positions Renzo only behind the market leader, ether.fi, which boasts a TVL of $4.016 billion, and ahead of other significant players such as Puffer Finance at $1.374 billion, Kelp DAO with $804.76 million, and Eigenpie closely trailing at $803.05 million.

The Depeg Incident

On April 24th, around 0400 UTC, Renzo's ezETH—experienced a significant price drop, plummeting to approximately $700 before stabilizing. This sell-off was triggered by the conclusion of Season 1 of the airdrop, prompting “loopers” to convert their ezETH back to ETH for use in other protocols or LSTs. 

So What Exactly Went Wrong ? 

Misleading Pie Chart (Token Allocation Chart)

Renzo’s initial announcement included a pie chart showing token allocation, which inaccurately represented the distribution of tokens, likely leading to confusion. (This was later deleted by Renzo). Notably, percentages like two allocations of 2.5% appeared the same size as allocations of 13.44% and 20%.  

Irrational & ( Illogical? ) Token Distribution

Renzo Protocol designated 10% of its total $REZ token supply for airdrop purposes. Of this 10%, the first season of the airdrop constitutes 5% of the total supply. Within this first season, 2% of the 5% allocated for the airdrop (which translates to 0.1% of the total $REZ supply) was specifically set aside for the holders of Milady Maker and SchizoPosters NFTs.

Airdropping tokens to NFT holders who do not have a direct relationship with a protocol may have caused the existing stakeholders to view the airdrops as unfair or poorly targeted. This led to further dissatisfaction and negative sentiment within the core community. Specifically, there are worries about potential unfair advantages or insider trading, as these NFT holders might receive tokens purely based on their holdings rather than their engagement or contribution to the protocol's ecosystem. 

Lack of Planning & Coordination

The end of the Binance Launchpool allowed certain users to trade their earned $REZ almost immediately, giving them a potential advantage to sell at higher prices before a larger volume of tokens entered the market from the airdrop.

Binance Launchpool concluded on April 29, with trading of the tokens commencing on April 30. Conversely, stakers not participating in the Launchpool could claim their airdrop only on May 2. This meant that those who participated in Binance Launchpool could start selling their tokens two days before other stakers have access to theirs. This created a perception of unfairness and inequality, potentially eroding trust and positive sentiment towards Renzo.  

Rumors & Hoaxes

There were rumors suggesting that if users sold their ezETH, they would lose eligibility for the airdrop. However, the Renzo team addressed these concerns on Discord, confirming that these rumors were unfounded. They clarified that airdrop entitlements are based entirely on the points users accumulate, not on their possession of ezETH at the time of the airdrop.

Conclusion

The Renzo incident underscores the importance of transparent and clear communication during pivotal moments such as token launches and airdrops. It also emphasizes on the timely prevention of rumors and hoaxes by effective communication and timely information dissemination. It brings to light essential lessons for Web3 projects, emphasizing the need for robust community engagement and equitable, fair and transparent token distribution practices.

The Renzo Protocol incident serves as a compelling example of the intricate relationship between technical operations, community expectations, and strategic communications in the blockchain space. This case also highlights the challenges and underscores the paramount importance of thoughtful planning and execution in maintaining trust and alignment within the community.