Key Takeaways
- Celsius Network, which possesses 450k $stETH worth $1.5 billion, suffers heavily from this liquidating phase
- Lido Finance states the exchange rate between stETH: ETH does not reflect the underlying backing of the holder’s staked ETH, but is more of a fluctuating secondary market price.
- Lido says it would provide direct 1:1 redemptions once withdrawals are enabled.
$sETH-the staked version of $ETH from Lido Finance has been going through a rough patch lately.$stETH which is fully backed 1:1 by $ETH is currently illiquid until the merge is estimated to happen in 2023H1 takes place.
Curve. fi‘s imbalance is attributed as one of the main reasons for 4stETH’s current downfall. Curve. fi is an automated market maker protocol designed for swapping between stablecoins with low fees and slippage. 75% of the Curve.fi pool is currently made up of $stETH, which has resulted in $stETH being around 3% under the peg.
What the de-pegging means for $stETH holders?
With the $stETH at critical levels and the de-peg expected to accelerate, the pool holders have a lot to revive from. Principal trading Firm Alameda Research has unloaded around 50k worth $stETH over a matter of hours and is currently undergoing massive slippage to exit.
Another one of the major holders of Lido, the Celsius Network, has also been hit hard by this recent unprecedented development. The Celsius Network has already lost large sums of money in hacks throughout the past year. Celsius recently lost a $70M loss in a StakeHound Exploit, and before they could revive from it, the firm was hit by another $50M loss in the BadgerDAO front-end exploit.
To top it off, it also lost $500M of client deposits in the recent LUNA stablecoin collapse. Celsius networks possesses 450k $stETH worth $1.5 billion. Using Aave, the firm had also deposited $2.5B $stETH for collateral and has accumulated an astounding USD 1.2B in debt. If $stETH de-pegged heavily, the high probability is that Celsius can get liquidated.
Celsius Network can now either sell their $stETH for $ETH and then stable coin to become more liquid or sell the $stETH as collateral and take out loans to repay customers. The firm has to navigate through the mountain of these mishaps while reeling from over $1B in debt.
SwissBorg-digital asset trading platform has around 80k $stETH ($145M) of customer funds as part of their asset management platform.SwissBorg has now less time to develop an effective strategy that could save it from getting liquidated.
Lido’s Response
As the $stETH slow decline has sparked interesting discussions around the unprecedented nature of staked assets within the crypto community, Lido Finance has come up with its clarifications on the recent beating. Lido took to Twitter to point out that the exchange rate between stETH:ETH does not reflect the underlying backing of the holder’s staked ETH but is more of a fluctuating secondary market price.
The company states that the market is “naturally finding a fair price for stETH as some participants need to find liquidity, and it would further create an opportunity for others to buy stETH at a significant discount.”
Lido cited the Terra collapse, market-wide deleveraging, and withdrawals from larger lending platforms, among others, as reasons for the destabilization of the stETH: ETH exchange rate. The crypto firms promise that following the Merge and withdrawals, direct stETH redemptions would effectively provide buyers of stETH today with a discount of over 1 year worth of staking yield.
The company stated that it would provide direct 1:1 redemptions once withdrawals are enabled. The firm reassures holders that when the holder’s stETH balance grows owing to earned staking rewards, they will receive more ETH post-redemption than they initially staked.
