“Chain effect” stETH – Alameda – Celsius

“Chain effect” stETH – Alameda – Celsius

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2022-06-13 10:11:43

What is stETH?

stETH is ETH staked in Lido Finance’s pool. This is a project that allows users to stake and lock ETH to participate in the Ethereum 2.0 upgrade process. In return, you will receive stETH tokens corresponding to the staked ETH – as proof of participation in staking.

After The Merge ends, stETH will be exchangeable for ETH at a 1:1 ratio.

Once there is stETH, in a sense, users have agreed to lock their ETH for a long time to wait for The Merge. However, not everyone wants to let their coins “sleep” like that. At this point, the ETH/stETH pool on Curve appears.

This pool allows users to swap between ETH and stETH immediately without having to wait until after The Merge. Of course, ETH and stETH still have to keep the ratio 1:1.

“Father suffers” Alameda Research

In theory it is. But in fact, the current ETH/stETH pool is 75% stETH. This leads to an imbalance or rather stETH depeg.

As you can see in the image below, 1 ETH staked will get 1.0288 stETH – a difference of almost 3%.

Why stETH depeg?

This means that someone has dumped stETH to ETH.

Check data on-chain, main fund Alameda Research did that!

Alameda swapped around 50k stETH to ETH

This should have been a rare arbitrade opportunity:

You swap 1 ETH to 1,029 stETH and hold until after The Merge ends. Then go to Lido Finance to change 1,029 stETH to 1,029 ETH. Thus, there will be a profit of about 3%.

However, this is just our view as retail investors. As for large funds, the whales in the market have the opposite view and approach.

Hedging strategy?

While it seems that we should take advantage of this depeg to hold stETH, the on-chain signal shows that there are whales doing the opposite: accept slippage and still swap stETH into ETH.

Swapping sthETH ​​to ETH in huge quantities and still accepting bad spreads – get much lower ETH than stETH

Analyzing more closely, we can see that this is a way of “hedge” – hedging and minimizing the risk of the “big hands”. Although the whole community is looking forward to Ethereum’s The Merge, there are still huge risks:

  • What if the price of ETH decreased but not increased after The Merge? >> Even if receiving ETH is equivalent to 1:1 with stETH, the ETH value is still reduced compared to the previously locked ETH
  • What if The Merge doesn’t go according to plan and gets delayed? >> Confidence in ETH is shaken >> ETH price drops

Because of such potential risks, to hedge and reduce risks, large funds are forced to swap stETH to ETH right now.

The stETH whales “hunt” the market

More importantly, Alameda is just one of seven large funds investing in Lido Finance – or the seven “whales” holding the most stETH today.

7 funds invested in Lido Finance, which will create a chain crash of stETH/ETH like with LUNA/UST before:

– a16z

– Alameda

– Coinbase

– Paradigm

– DCG – Digital Currency Group, parent company of Grayscale (GBTC)

– Jump and Three Arrows Capital (3AC) – the people behind LUNA/UST

From Alameda’s actions, the community has reason to fear that these 7 giants will continue to dump stETH on the market in the coming days.

However, it is not only these 7 names that are the “father of three” of ETH…

Celsius is about to “go bankrupt” and the “rescue” work

Celsius Network is also one of the big players, currently holding up to 450,000 stETH equivalent value 1.5 billion USD. But unlike the above 7 funds, Celsius is a lending project.

What is Celsius Network?

Here it is necessary to explain a bit about Celsius Network. This is a peer-to-peer (P2P) lending protocol. Use Celsius to:

  • Deposit crypto to the protocol to receive interest (APY up to 18.63%)
  • Use crypto as collateral to borrow other coins

Overall, Celsius is a typical lending project in the crypto market. And like other projects in the same segment, in order to maintain APY paying high interest to users, Celsius will bring user coin assets as collateral to staking/lending on other platforms to make a profit.

Of course, Celsius must ensure that there is always “abundant” liquidity so that users can withdraw their collateral at any time.

Why Celsius lacks liquidity?

Here, let’s take a look at Celsius’s liquidity cornucopia to what extent.

Celsius’s total assets in ETH as of early June 2022

As shown in the figure above, only 27% of the Celsius funds held (in the form of ETH) are instantly liquid. The remaining 73% are stETH and ETH2 Staking which cannot be withdrawn immediately and must be unlocked for many months.

Meanwhile, the amount of assets that Celsius users withdraw each week is about 50,000 ETH. Thus, if the money fund is maintained as it is now without doing anything more, Celsius will basically “run out of money” in the future. 5 weeks. (50k * 5 = 250k ETH, while Celsius currently has only 268k ETH).

Why does a lending project like Celsius have such a small amount of liquid assets?

Turning back history, Celsius is a project that is too “unlucky” to be involved in countless hacks that lose assets.

As can be seen, Celsius initially had a lot of good liquid assets, but gradually lost it due to becoming a victim of DeFi attacks.

Hurt people hurt others

In order not to be “bankrupt” like a traditional bank, Celsius has 2 ways:

  1. Sell ​​stETH to ETH (on Curve and some other trading platforms), then change to stablecoin and pay users.
  2. Collateral stETH to borrow other cryptocurrencies and swap to stablecoins.

Selling stETH to ETH is not so feasible right now. Because as explained above, the ETH/stETH pool on Curve is experiencing huge price slippage >> Earning less ETH, making the project lose money.

So easy to understand when Celsius has chosen 2 . away: bring that stETH to borrow on AAVE, Compound, Maker.


Borrowed: 466.7 million USD in USDC, 114.7 million USD in USDT, 98.9 million USD in DAI

Total loan: 680 million USD

– Compounds:

Borrowed: 149.5 million USD in DAI, 69.3 million USD in USDC

Total loan: 218 million USD

– Maker:

Borrowed: 278.7 million USD in DAI

You can check on-chain the borrowed wallets of Celsius here.

Thus, with 445k stETH, Celsius has used to borrow about 1.18 billion USD.

Notably, not only Celsius uses stETH to borrow on AAVE, but many other projects/institutions do the same. AAVE is available now 2.5 billion USD collateral in the form of stETH.

Value of stETH collateral on AAVE

Domino effect

Given the current situation, stETH is not a “reputable” enough collateral.

The risk that stETH is increasingly depeg, a decrease in value relative to ETH will create a chain effect that causes ETH to dump more and more.

  1. Alameda and major funds will continue to “out of stock” stETH.
  2. stETH depeg is heavier.
  3. The risky ETH/stETH lending pair on AAVE entails an ETH dump.
  4. Celsius no longer has enough liquidity for users to withdraw >> Community panic >> More and more people want to withdraw assets.
  5. Celsius is no longer able to repay the loan >> Lending platforms such as AAVE, Compound, Maker are forced to liquidate the collateral.
  6. Not only ETH dump but also BTC, MKR dump led to market crash.


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#Chain #effect #stETH #Alameda #Celsius

One thought on ““Chain effect” stETH – Alameda – Celsius

  1. Looking at what appears to be an FTX deposit address for Celsius would show that they sent 50,000 stETH shortly before the Alameda dump. Did Celsius’ stETH ultimately end up being swapped in the pool causing further peg problems? If short term liquidity is an issue it seems like it might be the only option, but if you’re already in a somewhat illiquid state it doesn’t help future moves. Also, what about all the ETH lent out through the Celsius pool on Maple Finance? 10k or so of illiquid assets there – some to Wintermute who just lost some in a hack. Loans aren’t due until August, but not much collateral backing them…

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