“Pledged Ether” in focus of crypto stress from Celsius to 3AC

From struggling lender Celsius to hedge fund Three Arrows Capital and industry heavyweight Sam Bankman-, a token known as “collateralized ether” has suddenly become a key focus for crypto traders trying to monitor extreme stress in digital asset markets – Freed’s Alameda Research is dumping their assets.

The key metric is the price of staked ether (stETH) — a token from the Lido Finance protocol that should trade close to the price of ethereum (ETH), the native cryptocurrency of the ethereum blockchain — and the price of ether the discount itself.

Monday’s discount hit a record 8%, according to Dune Analytics.

According to analysts, speculation is that cryptocurrency market makers and lenders may be forced to dump their holdings of stETH tokens to fund withdrawals and meet margin calls.

Staking Ether was launched by decentralized finance (DeFi) platform Lido Finance to provide liquidity to traders who “stake” ether on the Ethereum Beacon Chain.

This is part of Ethereum’s transition to a “proof-of-stake” blockchain.

Without going into all the details, participants in the system must commit to locking up their tokens for a period of time to help process transactions; in return, they are rewarded in crypto. But at the same time, they can take the stETH tokens and continue trading.

Lido dominates the Ethereum staking ecosystem, accounting for about a third of all staking ETH deposits.

In May, Goldman Sachs wrote that such a concentration of deposits “in theory increases systemic risk” due to Lido’s interconnectedness with crypto markets.

Major shareholder dumping

Celsius, a cryptocurrency lender , has been under scrutiny since it froze withdrawals last weekend, citing “extreme market conditions” for holding 409,260 stETH tokens, worth about 409,260 stETH tokens at current prices, according to data provided by portfolio tracker Ape Board. $470 million.

Celsius had earlier staked stETH on Stakehound because Stakehound misplaced keys, Johnny Lowy and Andy Hu, analysts at Huobi Research Institute, a research arm of the Huobi crypto exchange, wrote in a report on Tuesday. Lost nearly $71 million.

The report added that the platform is competing for liquidity amid concerns that Celsius users are starting to redeem at a rapid rate of around 50,000 ETH per week.

The stETH discount initially opened last month when the crypto market was rocked by the collapse of the Terra blockchain network and its stablecoin UST. Since then, stETH has mostly traded at a 2-3% discount, surging to 5% when UST entered a death spiral on May 12.

"Pledged Ether" in focus of crypto stress from Celsius to 3AC

Stake ether (stETH) started decoupling from ETH from a 1:1 exchange ratio in early May, and the gap has been widening ever since. (CoinMarketCap)

The market cap of stETH has fallen to $4 billion from around $10 billion in early May, driven by holders fleeing staking platforms as the price of ether plummets.

Singapore-based trading and investment firm Three Arrows Capital, one of the largest investors in the Terra blockchain, withdrew nearly $400 million in stETH and ETH from the Curve protocol in May, said Nansen analyst Andrew Thurman.

Three Arrows Capital , commonly referred to simply as 3AC, “has caught the attention of the on-chain community in recent weeks for the way it manages stETH positions.”

Data from Nansen shows that a wallet belonging to 3AC withdrew 80,000 stETH from decentralized lending protocol Aave on Tuesday and exchanged 38,900 stETH (~$45 million) in two transactions at a discount rate of 5.6-5.9% .

This comes after rumors circulated on Crypto Twitter that the investment firm may be facing financial difficulties .

A representative for 3AC did not immediately respond to a request for comment.

Last week, Alameda, another well-known trading firm closely related to Sam Bankman-Fried, founder and CEO of cryptocurrency exchange FTX, dumped 50,615 stETH, worth about $88 million at the time, according to a tweet by Hsaka.

illiquidity mania

Another reason for the discount is the relatively illiquid nature of collateralized ether , Andrew said .

Investors are fleeing risky assets such as cryptocurrencies as global financial markets tumble as central banks raise interest rates to fight inflation. This is squeezing crypto platforms to meet customer redemptions. At the same time, investors are now more willing to hold more liquid assets.

The daily volume of stETH is in the hundreds of thousands of dollars compared to the billions of dollars in ETH, making the price of the less liquid asset more sensitive to selling pressure. When a big player needs to sell its holdings, it may find fewer buyers, driving down the price of stETH.

“In the short term, stETH will face significant selling pressure,” the Huobi Research report concluded, “expecting shocks in the near term.”

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/pledged-ether-in-focus-of-crypto-stress-from-celsius-to-3ac/
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