stETH Continues To Depeg, What Is The Cause?

On September 7, stake ETH on Lido (stETH) once again returned to the 0.95 ETH area even though the market had somewhat stabilized before. This raised concerns when earlier in June, this incident also occurred, leading to many “disasters” in the market.

According to CoinMarketCap data, there has been a constant drop in stETH versus ETH during the last 24 hours. This token has fallen to the lowest level of 0.9546 ETH.

Previously, stETH had dropped deeply to the area of 0.93 ETH in June, causing many companies like Celsius or Three Arrows Capital to have severe liquidity problems.

Recently, the community is also buzzing with the news that 3AC continues to withdraw $33 million worth of stETH from Curve Pool.

The above $33 million figure is still modest compared to the approximately $1 billion in liquidity currently available in the stETH-ETH pool. However, the consequences related to the overall market sentiment are difficult to estimate in numbers.

Adam Cochran suggested that Aave’s preparation to suspend the ETH lending feature before The Merge could cause the community to reverse its previous position, thereby causing stETH to fall somewhat during this time.

It can be deduced that holding ETH on-chain that can be airdropped ETHPoW after The Merge has motivated the crypto community to mortgage other forms of assets to borrow original ETH to maximize the amount of ETHPoW received after the snapshot.

The Defiyst account shared a status line about the total amount of assets backing for WETH:

Although the weight has decreased from 62% (August 2022), stake ETH still accounts for about 55% of the collateral for WETH. This is still a high weight, and any move in stETH could lead to large liquidations.

Depositing stake ETH to lending platforms and borrowing ETH (or WETH) to increase the snapshot balance can be seen as implementing an ETH short with stETH as collateral. This means the market could liquidate users who implement this strategy if it plummets.

However, if there are strong declines, there will likely be some buying pressure as stETH is still backed by the corresponding amount of ETH staked in the Ethereum 2.0 contract.

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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