stETH Peg Lido

The Ethereum news causing a crash in the ETH price to $1,180 is that stETH has depegged from ETH. Is it just FUD though, and what is stETH?

Losing peg of course reminds people of the TerraUSD (UST) collapse, and there are also rumors of Celsius lending platform being insolvent. Today Celsius paused all withdrawals. Is there another LUNA crash in store for ETH, or is this a great buy the dip opportunity for cheap Ethereum?

Cryptoassets are a highly volatile unregulated investment product. Your capital is at risk.

What is stETH?

stETH stands for staked Ethereum, on the Ethereum staking platform Lido – when people stake ETH on Lido they receive a synthetic, derivate version of it, known as stETH.

The amount of stETH should therefore trade at a 1:1 peg to ETH itself. It was noticed this week however by many on crypto Twitter – one of the first being @Riley_gmi – that stETH / ETH was depegged and trading at 0.95.

What is Lido?

As he went on to explain Lido provide a ‘liquid staking’ service where ETH is locked up on their platform and users can use stETH to earn yield.

After the Ethereum merge date – in August – stETH will be redeemable for ETH, at a 1:1 ratio. Until the ETH merge and the Beacon Chain launch, the actual underlying asset of Ethereum locked up can’t be accessed. The same applied to those staking Ethereum on crypto exchange platforms like eToro.

Ethereum News Today

Since Ethereum has been in an uptrend against Bitcoin for several years, and such a strong asset – the second largest cryptocurrency and one of the best-performing altcoins of all time – people were happy to lock up their Ethereum. According to Glassnode around 10% of the entire circulating supply is locked up in ETH staking currently, prior to the ETH 2.0 launch.

There is now extreme fear and panic in the market, following news earlier this week that Alameda Research withdrew 100k ETH from Celsius, which also holds large amounts of ETH that generates interest – this ETH was not locked however, as Celsius is a crypto lending platform rather than a staking platform.

That has led to a sell-off in the Ethereum price, and some investors fear a further drop and liquidation cascade. The ETH price hit a low today of $1,180 at the time of writing. Bitcoin crashed also, correcting down as low as $23,800 before a small bounce.

Ethereum news crash

Price chart after the Ethereum news – taps 200 weekly simple moving average

Time to Buy Ethereum?

Some investors worry that a ‘run on the banks’ type situation with Celsius, and stETH / ETH losing its peg, is analogous to the LUNA collapse.

However others see the $1,200 area as a key support level for Ethereum – around the weekly 200 SMA – and are taking advantage of this FUD (fear, uncertainly and doubt) to buy and hold Ethereum as a long term investment. Ethereum is not facing the same issues with hyper inflation that LUNA did.

Celsius’ reasoning for pausing withdrawals (as well as swaps and transfers between accounts) is to ‘stabilize liquidity and operations while we take steps to preserve and protect assets’, according to an email sent to users. It also states:

‘We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.

Acting in the interest of our community is our top priority. In service of that commitment and to adhere to our risk management framework, we have activated a clause in our Terms of Use that will allow for this process to take place.’

Users will continue to earn interest on Ethereum while Celsius withdrawals are paused.

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Cryptoassets are a highly volatile unregulated investment product. Your capital is at risk.