Institutions flee the stETH trading pool, or may it accelerate at any time?

Today’s research topic is stETH/ETH, whose trading pair is running out of liquidity.

As we all know, stETH is the pledged version of ETH on Lido, and its purpose is to protect the security of ETH after the merger.

Therefore, stETH and ETH should have a one-to-one correspondence and have a liquidity pool on Curve. 

However, now the liquidity pool on Curve has become extremely unbalanced, with the proportion of stETH approaching 75%, an unprecedented tilt ratio.

Institutions fled the stETH trading pool, de-anchored or may accelerate at any time?

This has led to the exchange ratio of stETH to ETH has become 1.03:1, and the inclination is still increasing.

Institutions fled the stETH trading pool, de-anchored or may accelerate at any time?

Theoretically, the rhythm of de-anchoring is determined by the tilt ratio of the liquidity pool and the A-factor.

For questions about the A-factor, you can refer to @Tetranode’s tweet. Simply put, the stETH pool is currently at critical levels and de-pegging could accelerate at any time.

stETH and ETH are anchored on a one-to-one basis, and the merger will happen within a few months. Now buying stETH seems to be an arbitrage operation that can make a profit, which is very different from UST without asset backing, so why are investors exiting? Woolen cloth?

I have observed that Alameda Research is pulling out of their positions. In a matter of hours, nearly 50,000 stETH was withdrawn despite slippage losses .

As we all know, Alameda has a very sensitive sense of smell in the market…

Institutions fled the stETH trading pool, de-anchored or may accelerate at any time?

Institutions fled the stETH trading pool, de-anchored or may accelerate at any time?

Institutions fled the stETH trading pool, de-anchored or may accelerate at any time?

In fact, they are one of the top seven holders of stETH on Lido, and their move is likely to trigger a run.

Then look at the other big holders. Start with the lending platform Celsius.

Celsius owns close to 450,000 stETH, worth about $1.5 billion. They deposited these stETH into Aave as collateral and lent about $1.2 billion in assets.

This may not be a big deal, but…

Celsius is rapidly draining the redemption positions of its liquid investors.

They used billions of dollars in illiquid assets to take out massive loans to pay off customer redemptions.

Celsius is struggling, they lost huge sums of money in hacks over the past year, and things are getting worse.

At first they lost $70 million in the Stakehound incident. (BlockBeats

Note: On June 7, according to Dirty Bubble Media, the encrypted lending platform Celsius Network lost at least 35,000 ETH in the event of the loss of the Stakehound private key. )

Then another $50 million was lost in the BadgerDAO theft.

On top of that, $500 million in customer deposits was wiped out in the recent LUNA crash. Their reckless manipulation of client funds is truly speechless.

These are only the theft losses of public information, and other unknown theft incidents are not excluded.

Investors are now redeeming their positions at a rate of 50,000 ETH per week, meaning Celsius has only two options:

1. Swap their stETH to ETH and then to Stablecoin to increase liquidity.

2. Mortgage stETH and use the loan to repay customers.

If they choose the first option, they hold about 450,000 stETH, but Curve’s pool only has 242,000 ETH. Each sell-off intensifies the exchange ratio skew of the trading pair, which is a big loss for them.

There is also about $5 million in stETH liquidity on Uniswap, and CEX liquidity is unknown. But the liquidity on CEX, Uniswap, and Curve should not be enough to support them to sell all their positions. If they can, they should go directly to CEX instead of selling on Curve.

The trading pair of stETH is only ETH, (there is a USDC trading pair on FTX, but the proportion is very small), which means that after stETH is replaced by ETH, ETH will also face selling pressure.

They have lent a lot of money with stETH, and these multi-billion dollar selloffs will make their collateralization rate even more dangerous.

Suppose stETH decouples badly or market conditions get worse.

Celsius can be liquidated. Borrowing becomes more expensive, their collateral loses value due to market conditions, sell-offs below the peg cost them more, and liquidity dries up. Negative feedback loop.

One more thing worth noting is how Aave will liquidate an illiquid asset like stETH.

Are they responsible for these assets, or are they forced to remain illiquid for a few months while risking a drop in the price of ETH? What should they do?

It is very likely that Celsius was frozen for redemption before liquidation.

Celsius has only a few weeks of funds left and has suffered significant losses due to de-pegging, borrowing fees, and the risk of a delayed merger. It seems to be only a matter of time before being frozen.

Let’s not forget that they are not the only giant whales in this case. When other whales smell blood, they will fuel the fire, shorting the futures market while liquidating other positions. Oh oh, that’s probably why Alameda dumped 50k stETH and exchanged it for Stablecoin…  

Asset management platforms like SwissBorg hold around 80,000 stETH in client assets. It can be found through their wallets that they put $27 million in stETH in the Curve liquidity pool, and there are 51,000 stETH available. If they pull out of liquidity pools and dump stETH, Celsius will be in a dilemma.

After the feast, the giant whale is leaving, who will be the first?

Looking at today’s transactions, there have been some massive exits, including this one for 2400 stETH (~$4.2 million).

As stETH becomes increasingly illiquid, I will continue to keep an eye on other positions Celsius needs to liquidate. About $7 million of LINK, more than $400 million of WBTC, are already on the way…

A large number of retail investors are using leverage to arbitrage on Aave, and if the price of ETH collapses, the situation could become very ugly.

Everyone needs collateral to cover their leverage and sell their other positions.

If I were a VC or a market maker, I would play like this:

1. Liquidate them and go short at the same time;

2. The stETH peg is broken, causing a run to break out, ETH price collapses, and then stETH is bought at a steep discount before the merger.

This article only examines a few major stETH holders, other whales may have other risks.

It seems inevitable. My goal is to get some outside input to see if I’m missing something.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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