What is staked ether (stETH) and why the token is at the center of the crypto liquidity crisis – Money Times

the price of Staked Ether started moving away from the ether in May. (Image: Unsplash/DrawKit Illustrations)

Other cryptocurrency is making waves in the digital asset market. This time the currency is not a stablecoinsbut a synthetic asset — Staked Ether (STETH).

Staked Ether is a token whose price should be the same as the Ether (ETH)network native cryptocurrency Ethereum and the second largest on the market.

However, in recent weeks, STETH traded at a steep discount, adding even more fuel to the market’s liquidity crunch.

Friday (17), Staked Ether it was trading at 0.92 ETH, an 8% discount to Ether.

What is staked ether?

each unit of Staked Ether represents an ETH that staked on the Beacon chain.

The Ethereum network is experiencing a transition of consensus mechanisms from proof-of-work (PoW) to proof-of-stake (PoS).

However, before the transition is complete, several tests are underway and Beacon Chain is one of the test environments for the update.

In order to stake ETH, a user must lock up at least 32 ETH (around $36,200 at current exchange rates), a figure considered high by many.

However, the platform Financing of the Lido allows users to do staking of any amount of ETH and receive, in return, STETHwhich can be traded or borrowed on other platforms, depending on CNBC.

Get away from the ether

Staked Ether began to drift away from ether in May after the Terra network cryptocurrencies – LUNA and the stablecoin TerraUSD (UST) – collapsed as investors abandoned this type of investment.

In June, the freeze on direct debits announced by the Celsius Networkon the 12th, pushed the price of STETH of Ethereum’s native cryptocurrency.

According CNBC, Celsius Network acts like a bank, taking cryptocurrencies from users and lending them to institutions in order to generate a return on them. The company does the same with the ETH user, betting them on Lido to increase its profits.

Data from the ApeBoard website shows Celsius Network has over $400 million in deposits of Staked Ether. This scenario triggers a new alert: the fear that Celsius is trying to sell STETHwhich would lead to heavy losses and put even more pressure on the token.

Despite the new warning, there seems to be little that can be done in the short term, as holders of Staked Ether will only be able to redeem the original ETH six to twelve months after the completion of the Ethereum transition.

In other words, investors are required to STETH, unless they decide to sell it on other platforms. One way is to convert Staked Ether for ether using Curve (CRV)a service that offers pools to group assets together, allowing faster token exchange.

But according to Ryan Shea, economist at crypto investment firm Trakx.io, the liquidity pool for STETH and ETH on Curve “became quite unbalanced”.

Ether is less than 20% of pool reserves, indicating that there would not be enough liquidity to meet all withdrawal requests from STETH.

Another factor can jeopardize staked ether

Like other cryptocurrencies, Staked Ether was also affected by the current macroeconomic scenario.

The increase in the interest rate by the Federal Reserve (Fed, the US central bank) pushed investors out of categories considered high risk, such as tech stocks and cryptocurrencies.

Another company exposed to Staked Ether is Three Arrows Capital, a cryptocurrency hedge fund that is reportedly struggling financially.

According CNBCrecords on public blockchains show that the company actively tried to sell its reserves in STETH.

Earlier, Three Arrows Capital co-founder Zhu Su said he was considering selling assets and bailing out another company to avoid a meltdown.

With all of these factors in play, investors worry if the STETH will reach even more participants in the cryptocurrency market.

*With information from CNBC

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