Lido Staked Ether (stETH), a liquid token from the Lido protocol, needs to be 100% pegged to ETH. But surprisingly, this may indicate that the next crypto crash is imminent. Popular Bitcoin investor and independent analyst Brad Mills says that the stETH peg could tumble 50% against ETH in the coming weeks. He also suggests that the risk of a “DeFi contagion” will increase as Ethereum moves towards Proof-of-Stake. However, the warnings came after a famous Ethereum whale sold his staked ETH altcoin holdings.
1 million ETH staked under threat
Investors invest their ETH in Lido’s smart contracts. The reason they do this is to participate in the Merge upgrade, which will migrate Ethereum to PoS. As a result, they receive stETH, which represents the ETH balances they stake through the Lido project. Once the Beacon chain goes live, users will get the freedom to use stETH for unstacked ETH. Additionally, they will use various decentralized finance (DeFi) platforms to generate returns. Thus, they will be able to use stETH as collateral to borrow or provide liquidity.
However, Mills says that if the transition to Ethereum 2.0 is delayed, liquidity problems will arise in DeFi platforms. As an example, he cites the Celsius Network platform, which offers 17% annual interest returns. “If customers start withdrawing from Celsius, they will have to sell their stETH,” Mills said. Celsius owes 1 million ETH. Therefore, it is possible for Celsius to go bankrupt with Ethereum Merge.” There are still unconfirmed rumors that Celsius may go bankrupt. However, the best way to secure your money is to check your own private keys. “stETH may not ‘depeg’, but there is a high probability that DeFi will be hit hard in a crypto bear market,” Mills added.
DeFi may have trouble with ETH 2.0
Additionally, market commentator Dirty Bubble Media (DBM) predicts that even centralized yield platforms may face bankruptcy risks due to ETH obligations. For this, he cites the crypto asset management service Swissborg as an example. As we reported on Kriptokoin.com, Swissborg is giving daily returns on its approximately $145 million worth of Ether, including 80% exposure in stETH.
DBM added that it could enable the company to “exit the entire stETH position”, thereby forcing the altcoin project to lower its stable even further. Also, “How does Swissborg pay the daily return for these assets?” he asked. The firm had staked approximately 11,300 ETH of the total Ether holdings in Curve’s stETH/ETH pool. Then, following Terra’s collapse on May 12, the ETH peg became unstable and stETH/ETH fell to 0.955 during the day.
The famous whale removed stETHs from altcoin basket
All these warnings are the same as a whale abandoning stETH positions and converting to ETH the time has come. Mills responded by saying that stETH’s “dynamics are no different from GBTC at permanent discount”. In other words, the selling pressure will be “brutal” when the market turns bearish and the yields fade.
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