Ether is the world’s second largest cryptocurrency in terms of market value.
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Another controversial cryptocurrency is causing havoc in the digital asset market — and this time it’s not Stablecoin.
Staked ether, or stETH, is a token that seems to be of the same value as. ether.. But over the past few weeks, it has been trading at significant discounts to the second largest cryptocurrency, fueling the liquidity crisis in the crypto market.
On Friday, stETH dropped to 0.92 ETH. This means an 8% discount on Ethereum.
Here’s what you need to know about stETH and why crypto investors are worried:
What is stETH?
Each stETH token represents a unit of ether that is “stakeout” or deposited in what is called a “beacon chain”.
Ethereum, the network that underpins Ethereum, is being upgraded to a new version designed to be faster and cheaper to use. Beacon Chain is a test environment for this upgrade.
Staking is a practice in which investors lock tokens for a period of time to contribute to the security of cryptographic networks. In return, they receive rewards in the form of interest-like yields. The mechanism behind this is known as the “Proof of Stake”. This is different from “proof of work” or mining, which requires a lot of computing power and energy.
To invest in Ethereum now, users must agree to lock out at least 32 ETH until the network is upgraded to a new standard called Ethereum 2.0.
However, on a platform called Lido Finance, users can bet any amount of ether to receive derived tokens called stETH and trade or lend on other platforms. This is an important part of decentralized finance aimed at replicating financial services such as lending and insurance using blockchain technology.
StETH is an “algorithm” stablecoin, not a stablecoin like tether or terraUSD. Collapsed last month Under the tension of a run on the bank. This is like an IOU. This means that once the upgrade is complete, stETH holders will be able to redeem tokens for an equivalent amount of ether.
Decoupling from ether
When Terra’s stablecoin project collapsed, the price of stETH began to fall below the price of ether as investors competed for an exit. A month later, cryptocurrency lender Celsius began. Stop withdrawing your accountThe value of stETH has dropped further.
Celsius acts like a bank, acquiring your code and lending it to other institutions to generate deposit revenue. The company took the user’s ether and bet on Lido to make a profit.
According to data from ApeBoard, a DeFi analysis site, Celsius has over $ 400 million in stETH deposits. The current concern is that Celsius will have to sell its stETH, resulting in significant losses and further downward pressure on tokens.
But it’s not as easy as it sounds. StETh holders will not be able to redeem their tokens for Ethereum until 6-12 months after the event called “Merge” occurs. This completes the transition from Ethereum’s Proof of Work to Proof of Stake.
This comes at a price, as it means investors will stick to stETH unless they choose to sell on other platforms. One way to do this is to use Curve to convert stETH to ether. This is a service that pools funds and speeds up the withdrawal and withdrawal of tokens.
Curve’s liquidity pool for switching between stETH and ether is “quite imbalanced,” said Ryan Shea, an economist at crypto investment firm Trakx.io. Ether accounts for less than 20% of the pool’s reserves. That is, there is not enough liquidity to accommodate all stETH withdrawals.
In a tweet last week, Lido tried to ease investors’ concerns about the widening deviation from Ethereum’s value: “The stake ETH issued by Lido is backed by a one-to-one ETH staking deposit. I have. “
“The exchange rate between stETH: ETH does not reflect the underlying backing of the bet ETH, but reflects fluctuating secondary market prices.”
Cryptographic transmission
Like many aspects of cryptography, stETH is caught up in a whirlpool of negative news that affects the sector.
Higher interest rates from the Federal Reserve have led to a flight to safer and more liquid assets, which in turn has led to liquidity problems for major space companies.
Another company exposed to stETH is Three Arrows Capital, a crypto hedge fund rumored to be in financial difficulty.Public blockchain record is 3AC Actively sell stETH holdingsAnd 3AC co-founder Zhu Su previously stated that his company is considering bailouts by another company to avoid selling and collapsing assets.
Investors are worried that the decline in the value of stETH will hurt more players in cryptocurrencies.
“Cryptocurrencies do not have a central bank,” Shea said. “Things need to go well, which keeps squeezing the price of crypto assets and exacerbates the negative impact of the macro background.”
Bitcoin It temporarily fell below $ 18,000 on Saturday, pushing the 18-month low further down. Since then, it has recovered to over $ 20,000. At some point Ether was below $ 900 before regaining $ 1,000 by Monday.
“merge”
The stETH blunder has also led to new concerns about Ethereum’s security. About one-third of all ethers locked in the Ethereum beacon chain are bet through Lido. Some investors are worried that this could give one player over-control of the upgraded Ethereum network.
Ethereum has recently been completed Dress rehearsal Because of the long-awaited merger. The success of the event heralds an Ethereum upgrade, and investors expect it to take place as early as August. But I don’t know when that will actually happen. I’m already late many times.
“The latest updates on Ethereum’s testnet are positive and give more confidence to those waiting for the merge,” said Mark Arjoon, research associate at crypto asset management firm CoinShares.
“Therefore, once the withdrawal is finally activated, the stETH discount may be arbitrageed, but there will be some form of discount until the unknown date arrives.”
