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How does stETH loss of peg affect the Crypto market?

The cryptocurrency market has been suffering from constant bad news lately that makes the price of BTC, ETH and other alt coins plummeted and made many people fall into real anxiety.

From consecutive hacks of projects that caused millions of dollars in damage or before the collapse of Luna causing many investors to struggle and in recent days there have been more problems peg of STETH causing sell-offs ETH from large and small investment funds and investors in the market. 

So the problem is gone peg of STETH Where does the cause come from and how does it affect the cryptocurrency market? 

Everyone, let's see the post of BTA Hub Please!!

What is Lido Finance?

Lido Finance is a decentralized, user-friendly platform that provides staking services for Ethereum 2.0 and blockchain platforms that use algorithms Proof of Stake (POS) as Solarium, Kusama, Polygon, Polkadot.

User Lido Finance will receive daily rewards in the form of staking derivative tokens whose value is pegged to the underlying assets in a 1:1 ratio. 

For example, when a user staking 1 ETH will get 1 . back STETH.

1 attraction Lido Finance gives the user that is instead of the user lock Ethereum to join the upgrade The Merge Ethereum 2.0 in August 8 with a minimum of 2022 Ethereum to become validator, then they can join at Lido Finance numbers Ethereum smaller and staking ETH in return STETH, then bring STETH take mortgage at the platform Defi to borrow ETH and keep staking ETH in Lido Finance, forming such a loop to increase staking interest.

What is stETH?

STETH leaves token ERC20 represent ETH when we staking ETH in Lido Finance. STETH minted when we staking ETH and burned in reverse. STETH is a derivative token backed 1:1 by ETH. Staking users ETH your own on the platform Lido Finance will get back the staking derivative token.

Operation model of STETH considered as collateral to borrow more ETH across platforms DeFi, users participate in borrowing/lending with a liquidity pool stETH/ETH across platforms Defi as: Aave, Curves.....

How does stETH affect ETH price?

STETH represent ETH locked on chain Ethereum 2.0, used as collateral to borrow more ETH across platforms DeFi.

However, if a lot of users convert STETH blood ETH make the ratio stETH:ETH no longer holds the 1:1 stability, the users who borrowed ETH using STETH can be easily liquidated. 

This leads to the possibility that holders will be forced to change from STETH Wed ETH to reduce the risk of liquidation. 

The hedge funds mentioned cause stETH:ETH to lose peg seriously

One of the reasons behind the price drop STETH are said to be the investment funds behind the conversion STETH blood ETH on a large scale. 

ETH staking used as collateral to borrow more ETH across platforms Challenge as Curves, Aave... However, if its price plummets, then the holders may be forced to sell STETH their, leading to the price Ethereum and other cryptocurrencies are likely to fall further. 

The name mentioned first in the direct influence on the price STETH lost peg it's investment funds Alameda Research. Mall is one of the funds holding a large amount STETH on the platform Lido Finance

Mall converted 50.000 STETH Wed ETH and make lose peg between pair stETH:ETH and caused effects on other mutual funds and market investors leading to a sell-off from STETH blood ETH work for stETH:ETH pass away peg serious.

Alameda allegedly converted stETH to ETH

stETH:ETH loses peg

The second name mentioned here is 3AC or the rest is Three Arrows Capital. Investment funds hold the majority STETH or Alameda ResearchAccordingly, a wallet of 3AC converted 30.000 STETH Wed ETH with a value of more than 33.7 million US dollars. 

Also, the crypto community is spreading rumors that Three Arrows Capital is having difficulty in liquidity after the market continuously dumped heavily in the past time, as well as the general impact from the incident. Luna in early November.

Confirmed wallet address of Three Arrow Capital converted 30000 stETH to ETH

Concerns for Celsius Network

Celsius Network is a crypto-lending company and the main client of the platform Lido Finance so they will be the one to keep the amount STETH biggest. The problem just doesn't happen to them when ETH staking always keeps the conversion level at 1 STETH and maintained for a long time.

However, the market is currently extremely scared and panicking, following the news Alameda Research withdrawn in bulk ETH TU Celsius, while keeping a large amount ETH generate interest – however ETH This is not locked, because Celsius is a cryptocurrency lending platform, not a staking platform. 

That led to a sell-off Ethereum and some investors are concerned about a further drop and liquidation. Many people worry that the network Celsius may not have enough liquidity to pay investors who are buying back their positions. 

It is estimated that Celsius will run out ETH liquidity in five weeks at current rate. 27% ETH of Celsius is kept for liquidity, the rest is placed in STETH or placed in ETH 2.0 – tokens are then locked for a year. 

Many users became nervous and withdrew their assets in bulk. Faced with the risk of default, Celsius stopped supporting users to withdraw assets. 

Now Celsius There are only 2 choices: add more collateral to avoid liquidation of loans or accept liquidation.

Only 27% of Celsius ETH is held for liquidity, the rest is placed in stETH or placed in ETH 2.0

The current liquidation price of Celsius when I write this article on June 15th is when BTC drops below $06

Defi market: Great opportunity, but also a lot of risks

Market Defi is considered one of the most exciting markets in the cryptocurrency market, and is the driving force behind the development of the cryptocurrency market when attracting great attention from institutions and crypto investors.

However, its risks are also huge for investors and heavily affect the market when there are problems. 

From the recent hacks to the peg loss of Luna before that STETH The latest shows that when witnessing waves of panic for investors and causing huge sell-offs. 

However, it is possible that in the near future we may see regulatory agencies strengthen their supervision as recently there have been rumors about a draft law that proposes to eliminate money projects. anonymous electronic, with DAO (decentralized autonomous organizations), DeFi (decentralized finance) and exchanges required to be legally registered in the United States.

Copy of 1 draft law on Defi, DAO on Twitter

User protection will be a major focus for regulators, with policies aimed at requiring any crypto platform or service provider to be legally registered in the US, be it DAO or DeFi

However, the above things that I provide to everyone are just rumors with 1 draft that has not been approved, and in the near future when Defi If it has not been closely monitored, besides the opportunity, its risks are still very large for investors if we do not have the knowledge and understanding about it.

Summary: Through my article, people can see the negative impact that stETH's peg loss has brought to the market and also the risks that Defi brings.

In addition to the advantages that Defi brings to users such as: no control, fast liquidity, etc., it has now revealed many deadly disadvantages when the crypto market is gradually popular and with the participation of financial funds. main big. 

Hope everyone will have more views as well as more useful information to limit the risks in your investment process!

 

 

  

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