stETH depeg The main cause of this phenomenon is farmers deploying leveraged farming positions with stETH as collateral. The Lido team also made the community “concerned” a bit when it proposed to sell ETH to have finance to maintain operations in the near future.
How does stETH depeg affect the crypto market?
stETH is proof of staking ETH on Lido Finance. Later on, ETH 2.0 will convert to ETH at a 1:1 ratio
Most funds now stake ETH to earn interest through this method.
However, according to data from Curve Finance, this means that when swapping 1 stETH, users only receive ~0.95 ETH.
First shot: Alameda Research dumps 50K stETH into ETH. It is causing a loss of the stETH depeg 5%.
The large fund saw the risk of defi attacks after the LUNA incident, so the risk of defi models is high, which is the model of staking ETH in Lido.
Instead of staking 32ETH to become a validator, one can stake ETH in Lido and get stETH
Then take stETH as collateral at Aave to borrow ETH.
Continue to stake ETH in Lido to perform the loop and increase staking interest.
Risk of assets being liquidated when stETH and ETH do not hold the peg, i.e., when there is panic in the market, change all from stETH to ETH.
This used to happen with LUNA. stETH: ETH could be the next piece if the market simultaneously withdraws to ETH and cash out to USD.
Back to the story of significant funds, many funds holding assets as stETH are making moves to preserve capital due to the wrong market. There is a high probability that they will soon change all to ETH and release peg loss more seriously. ETH price decreases causing panic sale community, collateral on defi platforms like Curve, Aave at risk of being liquidated.
Followed by a series of dApps that use stETH and ETH as collateral or collateral are at risk of bankruptcy.
Typically Celsius, this lending platform is currently short of liquidity due to holding more than 70% of stETH. Celsius will not be able to pay if a user withdraws from the project because stETH is staked and need time, and it takes a long time to unstake.
Therefore, this project also uses stETH as a mortgage on Aave, borrowing another 1.18 billion to ensure liquidity.
However, the risk of stETH depeg accidentally is what can blow this company away. If the above assets are liquidated, Celsius will not be able to pay for users, dragging the entire market down to pour.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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