DeFi smit?  Experts warn that "Staked Ether" disconnection from Ethereum by 50%

DeFi smit? Experts warn that “Staked Ether” disconnection from Ethereum by 50% – Mail Bonus

The next big cryptocurrency crash could be around the corner due to Lido Staked Ether (stETH), a floating symbol from the Lido protocol that should be 100% linked to the native Ethereum, Ether (ETH) symbol.

In particular, the stETH connection could fall against ETH by 50% in the coming weeks, which increases the risk of “DeFi infection” when Ethereum moves towards proof of object (PoS), argues popular Bitcoin investor and independent analyst Brad Mills.

Over 1M Ether liability for risk of default

In detail, ETH investors are investing in Lido’s smart contracts to participate in The Merge, an online update that aims to make Ethereum a blockchain-proof chain, also known as Beacon Chain. As a result, they receive stETH, which represents their ETH balance with Lido.

Users will be able to redeem stETH for indefinite ETH when Beacon Chain goes live. In addition, they can use stETH as collateral to borrow or raise liquidity using various diversified financial systems (DeFi) to earn returns.

But if a switch to Eth2 is delayed, this could cause a huge liquidity problem on DeFi systems, Mills claims, using the Celsius Network, a cryptocurrency lending platform that offers up to 17% annual percentage rates, for example.

“If customers start withdrawing from Celsius, they have to sell their stETH,” Mills explained. “Celsius has a debt of 1 million ETH. So, 288k are inaccessible until then [the] Combine, ~ 30K lost, ~ 445K are stETH and 268K are liquid. Could cause a gel. “

Apart from the unconfirmed rumor that Celsius could go bankrupt, the best way to secure your money is to manage your own private keys. He adds:

“StETH could not” depeg “but the risk of DeFi infection in the crypto bear market is high.

Satisfaction?

In addition, even centralized return platforms may face bankruptcy risk due to their ETH obligations, argues market commentator Dirty Bubble Media (DBM), which cites Swissborg’s cryptographic asset management service as an example.

Swissborg offers a daily return of about $ 145 million worth of Ether it owns, including 80% risk in stETH.

Daily returns on Swissborg. Source: Official Website

The company had gambled about 11,300 ETH of its total holdings in Ether in the stETH / ETH pool Curve. Then the ETH connection became unbalanced on May 12 following the collapse of Terra, where stETH / ETH dropped to 0.955 per day.

Promoted Ether to Ethereum conversion rate in 2022. Source: CoinMarketCap

“How does Swissborg pay the daily return on these assets, when the required rate of return from Ether is locked together with the principal,” DBM asked, adding that it could let the company “go out of all its stETH position” and thus force its ETH connection even lower. .

Meanwhile, warnings fell together with a whale that dropped its defendants Ether positions for ETH on Wednesday.

Mills answered, and said that the “dynamics” of stETH are no different from GBTC at perma rates. In other words, selling pressure can be “ruthless” when the market turns around and returns disappear.

He explained:

“When there is deep liquidity and the possibility of arbitration, quantity, raccoons on Wall Street [and] flashbois will milk the crop. When the policy goes against them, they will add ruthless sales pressure.

As of Thursday, the stETH / ETH ratio had recovered to 0.97, which is still 3% below the estimated connection.

The views and opinions expressed herein are those of the authors only and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading business involves risk, you should conduct your own research when making a decision.