The Ethereum Scare
The continuous stEth selloff has lately increased, adding to the troubles of Lido, the largest Ethereum staking platform. It's barely been a month since the Terra Luna fiasco and the ensuing turmoil in the cryptocurrency market. A month later, Lido finance and its staked Ethereum stETH are at the center of yet another liquidity crunch.
Highlights-
What is Lido Staked Ether?
Lido offers a flexible staking service in which customers stake Ethereum and earn the same value in a token known as stETH. This can then be used as collateral for loans or deposited in other decentralized finance (DeFi) protocols to generate additional yields on top of the staking reward.
It has been quite popular among individuals who do not have the minimum amount of ETH and prefer greater flexibility in their investments. It has 4.2 million ETH staked, which is around one-third of the entire Ethereum staked (12.8 million ETH).
The Problem
The problem emerged when the price of the stETH token fell below the price of Ethereum, to which it is meant to be tied at a 1:1 ratio. Ethereum is presently trading at $1,035, whereas stETH is trading at $968, a 4.25% decrease and only worth 0.977 ETH.
Three Arrows Funding, a venture capital firm, has been selling stETH. According to the 3AC wallet address, at least 22,830 stETH tokens were recently changed back into ETH. The firm sold at least $40 million in Lido's staked Ether early Tuesday, making it the token's top seller in the last week.
Market watchers have been keeping a close eye on stETH, which has consistently traded on par with ETH. That began to alter in May, and its more abrupt "de-peg" last week provided a chance for ETH bulls as well as a headache for its largest holders.
领英推荐
Celsius Network, a centralized one-stop marketplace for cryptocurrency investors and dealers, has been under pressure to sell its stETH holdings in order to make up client withdrawals. The demand was so great that it froze client assets on Sunday night in order to honor its withdrawal commitments.
The Concern
The Celsius debacle has also caused alarm since the crypto lending platform owns a significant quantity of stETH. Celsius transferred millions of dollars in cryptocurrency to the FTX market earlier this week in an attempt to increase liquidity. Celsius presently has 409,260 stETH, which is worth about $415 million at the time of writing. If this is liquidated, the de-pegging situation is likely to worsen rapidly.
A crypto observer who goes by the name MoonOverlord tweeted, “people think Celsius is the biggest stETH dumper but its 3AC and it isnt relatively close, they are dumping on every account and seed round address they have, most looks like its going to payback debts and outstanding borrows they have.”
Three Arrows has been criticized for allegedly pushing stETH when instead the company was in the process to dump it.
3AC, One of the largest cryptocurrency funds is currently under tremendous pressure since it is required to fund its hefty collaterals. The business has previously invested in Avalanche, Solana, Terra, and a $100 million NFT fund formed in August of last year. These assets have now suffered double-digit losses, and Three Arrows appears to be in jeopardy. Unfortunately for them, even the slightest drop in Ethereum volatility will result in enormous liquidation of the company's holdings.
Three Arrows Capital is a hedge firm founded in 2012 by Su Zhu, a former securities trader at Deutsche Bank, and Kyle Davies, a former trader at Credit Suisse. It has evolved into one of the most powerful crypto funds, and while it does not publish its assets under management, it is said to oversee billions of dollars in assets. 3AC began shifting crypto assets this week to top-up funds on DeFi platforms like AAVE to prevent probable liquidations. With the price of Ethereum approaching $1,000, almost $81 million in long and short positions were liquidated across trading platforms.
Three Arrows Capital lost $31.37 million on Bitfinex in May 2022, according to a crypto reporter. The 3AC marked address holds a collateral position on AAVE V2 of 211,999.12aWETH (worth $235 million) and total debt of $183 million in stablecoins USDC and USDT. The reporter claims that if the price of Ethereum falls below $1,014, the collateral holdings will be liquidated. As a result, 3AC is currently paying off its debt.
Despite investors' concern, the fund's manager, Zhu Su, claimed that they are working with the appropriate parties and are totally dedicated to resolving the matter. The co-founder of 3AC is most likely attempting to raise more cash from possible investors in order to partially pay the debt and decrease the liquidation price if the market experiences selling pressure again.