Celsius’ Withdrawal Freeze Created Ethereum Arbitrage Opportunity
According to Cathie Wood’s Ark Investment Management, the Celsius Network’s withdrawal freeze earlier this month created an Ethereum arbitrage opportunity for patient traders, as staked Ethereum tokens began selling at a discount.
The crypto lender generates income from institutional lending, mining, and DeFi lending, according to Ark analyst Frank Downing in a newsletter. Part of the income is created via Lido Finance’s staked ether token, stETH, which is backed 1:1 by Ethereum staked on the Beacon Chain, according to the analyst.
stETH accounted for 41% of Celsius’ DeFi deployments, while Ethereum’s Proof-of-Stake deposit contract accounted for 30%. The latter will stay illiquid until Ethereum’s mainnet switches to a Proof-of-Stake consensus process, which is expected to happen later this year. stETH, on the other hand, may be freely exchanged on the market since it allows ETH holders to preserve liquidity.
Celsius is likely diverting stETH from its primary wallet to wallets belonging to cryptocurrency exchange FTX to pay withdrawal demands from its users, according to the analyst, as first reported by Benzinga. The price of stETH has dropped to 0.934 ETH, despite the fact that it is backed 1:1 by the cryptocurrency.
The discount, according to the analyst, creates an arbitrage opportunity for patient investors willing to hang on to their stETH until Ethereum withdrawals are accessible following the merger.
Celsius halted withdrawals, according to Downing, in order to buy time to exit its problematic investments. Its action might aggravate market sentiment and put additional downward pressure on cryptocurrency prices, leading to increased regulatory scrutiny.
In an interview with the Financial Times The stETH-ETH peg being broken, according to Marcus Sotiriou of GlobalBlock, “raises concerns that if clients try to redeem positions, Celsius will run out of liquid funds to pay them back.”
According to Sotiriou, the company is “taking massive loans against their illiquid positions to pay out their customer redemptions” and might run out of money in as little as five weeks.
Celsius stated in its announcement that it is “taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.” Users will continue to earn incentives on their holdings, according to the company.
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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