Lido-Staked ETH Prices Slip Due to Liquidity Issues
Key points to remember
- Lido-staked ETH price fell 5% on Curve due to a large imbalance in liquidity distribution within the pool.
- Lido says stETH is backed 1:1 with ETH. He argues that the price difference is due to the markets, not the state of the Lido itself.
- The disparity may be caused by withdrawals on other platforms, the activity of large investors, and various other factors.
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The price of Lido-staked ETH (stETH) fell significantly against Ethereum prices, losing its predicted parity with the latter asset.
Lido-Staked ETH loses target price
stETH loses parity with ETH.
As of 21:00 UTC on June 10, the price of stETH on Curve was 0.9474 ETH. This price represents a slide of around 5% despite stETH being backed at nearly 1:1 with ETH deposits.
This Curve pool is becoming heavily imbalanced as market participants continue to sell their stETH for ETH. The pool is now roughly 80% stETH and 20% ETH, which forces the Curve algorithm to adjust the price.
With over $1.2 billion in liquidity, the Curve pool is the deepest in the market. Hence, it has a major impact on the overall market price of stETH. Various other DeFi exchanges, including Uniswap and Curve Finance, as well as a number of centralized exchanges also support stETH, but are unlikely to have as big of an impact as Curve.
Lido’s governance token, LDO, is currently trading at $1.00 and has apparently been unaffected by the slide in ETH/stETH prices.
Lido says market finds fair price
Lido is a DeFi protocol that offers liquid staking. When users stake their ETH with Lido, they receive stETH, a token that represents their stake. They can then use stETH with other DeFi services while their staked ETH continues to generate rewards.
As such, stETH aims to match the price of ETH, but this is not guaranteed. Swimming pool said that stETH is “backed 1:1 with ETH staking deposits,” but the exchange rate represents “fluctuating secondary market price” rather than actual support.
Lido assured users that current events do not threaten the operation of the protocol. It states that once the Ethereum merger is complete, it will allow withdrawals and these withdrawals will be provided at a rate of 1:1 regardless of market prices.
In fact, Lido seems to imply that the fluctuations are positive. He says the market is trying to find a “fair price” and says this presents an opportunity to buy stETH at a “significant discount.”
The causes of the slip are unclear
Lido cited several factors that led the two assets to lose parity, such as the collapse of TerraUSD, market-wide deleveraging, and withdrawals from other lending platforms.
Elsewhere, DeFi commentator Small Cap Scientist speculated that the current price changes could be due to specific large investors. He noted that Alameda Research transferred $50,000 worth of stETH this week.
He also argued that Celsius Network was cash-starved and therefore had no choice but to buy back its stETH for ETH at a loss, although this has apparently not happened yet.
Given that the Lido-staked ETH has only just started losing parity, it remains to be seen if other factors will come into play.
Disclosure: At the time of writing this article, the author of this article owned ETH and several other cryptocurrencies.