Analyze market dynamics after stETH de-anchoring from on-chain data

At present, the price of Ethereum has fallen to around $1,100, and with the decline in the price of Ethereum, DeFi protocols are facing large-scale liquidation pressure. The market sentiment after the thunderstorm of the stablecoin UST-LUNA has not been fully digested, and dominoes have also occurred on Ethereum.

Cause: stETH de-anchored

stETH is a liquid pledge token issued by Lido, a platform that has turned from ETH to PoS mechanism. Lido has been introduced in detail in Hoo Research’s previous articles. Readers who are not clear can read it again.

In theory, stETH and ETH can be exchanged 1:1, and stETH can also participate in DeFi lending protocols such as AAVE’s repeated nesting dolls, such as 1 ETH is exchanged for 1 stETH, and then the 1 stETH is mortgaged on the lending protocol Assets, lend ETH, and then carry out cyclic pledge and loan. Under normal circumstances, 20% APR can be achieved. However, once the exchange ratio of stETH and ETH is out of balance, this leverage will face the risk of being liquidated.

Crypto KOL Cobie pointed out that, in fact, stETH will actually be market-priced based on the demand or liquidity of the pledged ETH. stETH is not strictly anchored to ETH, and a 1:1 conversion ratio is not a necessary requirement for Lido. Therefore, the relationship between stETH and ETH cannot be viewed simply according to the anchoring logic of UST-LUNA.

However, the reason for the initial decline of stETH’s de-anchoring this time was that after the UST thunderstorm, the entire market collapsed. In order to save UST, a small number of institutions holding stETH withdrew their liquidity from Lido and sold stETH. The lack of liquidity led to an imbalance in the exchange ratio of stETH and ETH, and stETH began to de-anchor.

Fermentation: loan liquidation

On June 13, the exchange ratio of stETH to ETH has dropped to 1:0.9471, and the ratio of the liquidity pool has been further inclined. However, what aggravated the de-anchoring of stETH was another thunderstorm of the lending platform Celsius (previously, Celsius was stolen 896.8 WBTC in BadgerDAO in December 2020). Celsius is the giant whale holder of stETH. The fact that they are also the largest interest-bearing stETH holders (on AAVE) means Celsius is tied to Lido’s safety.

Celsius pledged more than 40,000 ETH to ETH2.0 pledge service provider Stakehound in 2021 to participate in the mining of the Ethereum 2.0 beacon chain. However, due to the loss of some wallet private keys for ETH pledged by Stakehound, part of the pledged ETH cannot be retrieved on the chain, and users who lose this part of Stakehound must also bear it. Celsius, as an important user of Stakehound, also lost a lot of money. Amount of ETH.

Celsius, which fell into a crisis of trust, was once again picked up by users to find a bigger problem. Celsius divided the ETH pledged by users into three parts, 27% were retained; 44% were given to Lido to mine the beacon chain and got stETH, so 44% of the total ETH held by Celsius are stETH tokens; the remaining 29% Celsius mines the beacon chain itself, and the 29% of the ETH quota will not be available until the beacon chain goes online. Convert to ETH. That is to say, users who cancel the pledge can only get back 27% of the total amount left by Celsius, and 44% of the ETH. Celsius needs to go to Curve to use stETH to exchange to get it.

The market panic began to ferment, and users kept exchanging stETH to ETH on Curve. The price of stETH was run on by the market, and stETH and ETH began to de-anchor seriously. When the de-anchoring reaches a certain level, the value of the collateral for revolving lending will be less than the value of the loan. This will lead to further liquidation. Once the liquidation begins, the collateral stETH will be liquidated.

Of course Celsius took rescue measures. On June 13th, Celsius added 2041.48WBTC of collateral to the Maker protocol, and a total of 5206.89WBTC was added in the past two days. The address currently has a total of 23962.63WBTC collateral and a debt position of 278 million DAI, with a liquidation price of $15151.87. According to the dynamic adjustment of the market, the liquidation price is still falling, and it has reached $14002.81 as of the time of publication.


(Figure 2: 2022.06.14 WBTC liquidation price)


(2022.06.15 WBTC liquidation price)

Celsius has taken measures to prohibit withdrawals, transactions and transfers when there is no other way. However, the current problem of liquidity mismatch has not been solved, and the selling pressure of institutions continues. As of the time of writing, Celsius has asked a lawyer to restructure, which shows the seriousness of the situation.

Status: On-chain data

The area of ​​negative influence brought by Celsius is expanding.

On June 13th, a big player in uniswap v3 smashed 65,104 ETH, and the price of ETH was once smashed to around $950.


(65104 ETHs were sold on the block explorer)

On June 14, Three Arrows Capital exchanged 17,780 stETH for 16,625 ETH;

On June 15, MakerDAO further disclosed that if stETH falls further, the total value of stETH facing liquidation, stETH is now quoted at $1,146.06.

According to Parsec Finance, there is $210 million in ETH in on-chain collateral.

FtL9V9nuDTPnyiFbRdj-nr0Ggpzd.png? W = 536 & h = 449

(collateral on the main chain)

Between June 14 and June 15, the highest value of assets worth $1.07 million was liquidated on the DeFi chain.


(DeFi on-chain liquidation value)

In addition, as can be seen from the figure below, the largest liquidation line of ETH so far is $980, with a scale of $250 million. In addition, ETH has liquidation pressure of $200 million in DeFi protocols in the range of $1,000 to $1,200, with AAVE and MakerDao occupying the main liquidation part. The on-chain clearing prices of major DeFi lending protocols on ETH are also constantly being refreshed. The clearing price on AAVE is $979, the clearing price on Compound is $1045, and the clearing price on fuse is $1145.


(ETH on-chain liquidation price)

The data on lending by major lending protocols on ETH is also out of balance.


(Loan data on Compound chain)


(Loan data on the AAVE chain)


(Loan data on the Maker DAO chain)

During the writing process, a large amount of ETH in the market is constantly being sold, and the data is constantly being refreshed.


In addition, it can be seen from the data that the profit of the current mainstream lending protocol on ETH is almost zero.


(Profits from ETH-related lending protocols)

Summary: Market Views

The liquidation price of the market can only be used as a reference for market selling pressure, and it does not completely determine the direction of the market. There are three roles of borrower, lender and liquidator in the DeFi lending agreement. In the case of market stampede, if the borrower can compensate the collateral or repay in advance, the liquidation price will change. As mentioned above, Celsius added collateral in the protocol, and the price of WBTC moved down. Therefore, the clearing price is not a 100% reference value, it is a dynamic data.

But overall, this article believes that the market continues to decline. In addition to the dominoes of the industry itself, external macro factors are also closely related to the industry. On June 16, the Federal Reserve’s FOMC interest rate decision is about to take place. At present, the market is in constant debate on whether to raise interest rates by 50% or 70%. Maybe the market will give the answer tomorrow. On June 17, the Bank of Japan will announce its interest rate decision. The Bank of England may raise interest rates for the fifth time in a row in recent days. In any case, macro factors such as raising interest rates and shrinking balance sheets have become one of the factors to be considered in judging the cryptocurrency market.

Finally, a quote from the founder of Nansen concludes this article:

“In 2018, when ETH crashed to $80, I was fired; but in 2019, the “year of crypto construction” that changed the most lines, I co-founded Nansen, and if you keep trying, you can always There will be a silver lining.”

risk warning

All articles of Hoo Research do not constitute investment recommendations. Investment is risky, and personal risk tolerance must be considered. It is recommended to conduct in-depth research on the project and make your own investment decisions carefully.

About Hoo Research

Hoo Research is committed to researching forward-looking and strategic major topics in the development process of the blockchain industry, solving the problem of information asymmetry in the industry, and promoting the comprehensive development of the blockchain industry. The Hufu investment research team mainly comes from well-known financial institutions at home and abroad, and is the world’s leading industry expert research team. The research content involves industry trends, application innovation, model exploration, etc., relying on the unique advantages of the Hoo platform in data, technology, channels, etc., to form research results that are branded in the segmented field.

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