stETH – ETH, De-peg Is Up To 5%

After Ethereum successfully deployed The Merge on the Ropsten testnet, this community has had many “exciting” moves and activities. However, for stETH (ETH 2.0 staking token) holders, it seems that they do not have enough confidence in the future potential of this coin.

stETH continues to de-peg

After the incident of Luna-Terra caused the community to stir and fluctuate strongly with many trading pairs, stETH also had a slight deviation compared to ETH.

However, at the time, the stETH – ETH spread was only 2%. According to data from Curve Finance, the depeg level reached 5% at the time of writing.

This means that when swapping 1 stETH, users only receive ~0.95 ETH. With significant positions, the slippage can be even more severe.

Reason

The main reason for this phenomenon is that farmers deploy leveraged farming positions with this token as collateral.

It seems that holders are not very comfortable with this volatility. The volume of the stETH – ETH pair increased sharply in the time before The Merge took place on Ropsten.

In addition, swaps of significant sizes from stETH to ETH were also recorded.

Recently, the Lido team also slightly “concerned” the community when proposing to sell ETH to have the finance to maintain operations soon.

Most stakers in stETH are looking to reduce risk, converting to ETH so that it can be easily handled in case of substantial market volatility.

 The majority of positions that can be liquidated range from 0.9 regions to 0.83. In terms of numbers, this is still quite far from the current 0.95 price zone. Still, market sentiment and dominoes are incredibly unpredictable.

One of the reasons for this concern is the liquidation process. In this stage, the liquidators will buy (or flash loan) ETH and deposit it into Aave to pay the loans in ETH, thereby withdrawing stETH and enjoying an additional bonus.

As such, when liquidating and receiving collateral back, liquidators are likelier to continue to sell these assets for a profit. This will likely continue to create another selling pressure for stETH. This snowfall effect frequently occurs on Futures exchanges.

However, in the opposite direction, in the market, there will still be arbitrageurs (i.e., organizations and individuals buying and selling arbitrage). And if the spread is large enough to be profitable, there may be some buying pressure to balance the rate.

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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