The Next Crypto Depeg? Staked Ether, ETH Show Signs of Divergence

The Lido protocol said stETH was trading at a 4.2% discount to ether on Friday morning

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Blockworks exclusive art by axel rangel

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key takeaways

  • Users with leverage “might be at risk of liquidation,” Lido said
  • Lido revealed yesterday it would offer incentives for users to provide liquidity to its new Curve pool

Liquid staking protocol Lido warned that the swap rate between ether (ETH) and stETH — a token representing ether staked on Lido — has deviated from its one-to-one peg amid crypto market turbulence.

The protocol allows its depositors to use their Lido staked assets to gain a yield on top of their original staking yield.

But Lido said in a tweet Friday morning that stETH was trading at a discount of 4.2% to ETH on the main Curve pool.

The protocol noted that while long-term stETH holders and liquidity providers are not at risk, leveraged positions on stETH are.

“If you have a leveraged position, for example through Aave, you might be at risk of liquidation,” the protocol tweeted.

“You should urgently de-risk any leveraged positions that have a challenging health factor, for example, by adding extra collateral.”

ETH traded around $2,080 at 12:45 pm ET, according to Blockworks data. Meanwhile, stETH was at roughly $2,000.

Lido revealed yesterday it was deploying an additional Curve pool to improve the liquidity around the peg between stETH and ETH. The pool offers additional incentives amounting to one million Lido DAO tokens (LDO).

LDO was trading at $1.68 at 12:45 pm ET — up nearly 10% in 24 hours.

“We all know that there is no reward without risk; at the same time Lido works to maintain healthy integrations,” Lido wrote in a May 10 blog post. “In the event of a liquidation, collateral will be sold to cover the debt. To ensure that there is always enough liquidity on the market we perform liquidity sufficiency analysis using aggregated indicators.”

On Friday, following the resumption of the Terra blockchain for the second time, Lido announced that users could bridge bETH — a representation of stETH on Terra’s Anchor protocol — back to Ethereum. 

As holders flee Anchor and retrieve stETH, if they want to cash out to fiat currency, they must first sell stETH for ether, as major exchanges only list the native asset — not its staked derivative. 

Much of the bETH being swapped in Curve stems from liquidations of loans on Anchor that became undercollateralized, and was therefore acquired at a discount.

Macauley Peterson contributed reporting.


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