Renzo Protocol

One-Liner: Renzo Dynamo DEX creates a sophisticated fee mechanism that responds to price deviations from asset pegs, particularly for liquid staking tokens like ezETH.

How it works:

• Stable peg conditions: When the DEX price of a pegged asset like ezETH stays close to the exchange rate, swap fees are low to allow for greater volume
• Dynamic fee activation: If the price drifts from the peg, a dynamic fee mechanism kicks in
• Sell-side protection: ezETH sell fees increase as the price falls below the peg, disincentivizing further slippage
• Buy-side incentives: Buy fees decrease, encouraging trades that restore equilibrium

Effects:

• Efficient liquidity: Deep, efficient liquidity with low swap fees when the peg is stable
• Volatility response: High sell fees and low buy fees during market volatility, incentivizing peg restoration
• Aligned incentives: Dynamic fee adjustments align Liquidity Providers and arbitrageurs to restore the peg