In the context of the new decline in cryptocurrencies, some companies that risk liquidation have found themselves in chaos, including the Celsius credit platform.
The storm in the cryptocurrency market and the stablecoin that occurred a month ago continues to have effects on the ecosystem. Last week, many analysts warned of the liquidity risk of certain companies affected by the lido stakek eth token (stETH), such as Celsius and Swissborg.
That was enough for the cryptocurrency market to fall again this weekend (bitcoin lost 9% of its value this Sunday to $ 25,000 at the time of writing, ether has lost 11% of its value and is trading at about $ 1,300) to further weaken the ecosystem. .
The US cryptocurrency lending and stacking platform Celsius, which has 1.7 million customers and manages about $ 12 billion, announced on Monday that it will no longer allow its customers to withdraw or transfer their cryptocurrency.
“Today, we are taking these steps to put Celsius in a better position to ultimately meet its withdrawal commitments,” the company said in a blog post. “We are taking this necessary step in the interest of our entire community to stabilize liquidity and operations, while taking steps to preserve and protect assets. In addition, customers will continue to receive rewards during the break, in line with our commitment to them.”
The problem of parity between stETH and ether
This decision is not accidental, it is part of the context of weakening the cryptocurrency market. Indeed, after the collapse of the cryptocurrency luna and terra usd (UST) which no longer keeps its promises of parity with the dollar (theoretically 1 UST = 1 dollar), some have already turned a blind eye to another token: the lido staked eth (stETH). It is a synthetic token created in 2020 by the decentralized Lido platform, which is expected to have the same binding (or “binding”) as ether (ie 1 stETH = 1 ether). Recall that the anchor to the currency is called “peg”. When there is a difference between the value of the underlying asset and the currency, we speak of “de-pegging” or “loss of parity”.
However, a month ago, to the great surprise of the ecosystem, this synthetic token came off the air, making a 4.7% discount on May 12. Today the gap remains significant, at the time of writing this discount was 1.45%.
In the context of the next merger of Ethereum (The Merge), users can practice “staking”, ie a cryptocurrency loan made in a blockchain at interest. Specifically, they invest in the smart contracts of the Lido platform to participate in the merger of The Merge, thus receiving stETH.
“Currently, when people” put “their 32 ETHs in the core network (Editor’s note: Ethereum core blockchain) and deploy the Ethereum site, they are eligible for a variable percentage (which should be about 3/5%). and 32 ETHs will be released only after the merger. To overcome this, stETH was created, which allows users to receive a liquid token that can be exchanged, sent, borrowed at any time in exchange for slightly lower interest rates, “explains the founder of Au Coin du Bloc.
As The Merge’s merger date has been postponed many times, it heightens tensions in the decentralized finance ecosystem, which has already been weakened by the Terra ecosystem.
“Delaying the release of The Merge can cause panic, loss of investor confidence, sales, loss of peg, and so on. Everything again depends on trust in the protocol, “the latter continues.
“Risk of infection in decentralized finance”
As early as last week, many analysts warned that some companies affected by stEth could be in danger of default if their users broadcast a lot of airtime under stress. Thus, analyst Brad Mills mentioned the case of the Celsius Network, which is exposed to stETH by 44%.
“If Celsius is forced to start selling its stETH, stETH will be removed by 50%,” the analyst wrote on Twitter.
“We do not know for sure whether Celsius is insolvent, but now there is a very high risk of having your money there. Decentralized finance (Defi) in the crypto-bear market is high,” he warned.
The risk of infection could also affect centralized platforms such as Swissborg, according to an analyst at Dirty Bubble Media.
According to the analyst, the company owns 79,597 ethers, of which 80% is stETH. According to the latter, after losing on May 12, if Swissborg closes its position, it could lose more than 2,500 broadcasts, or the equivalent of $ 4.5 million.
The analysis of cryptocurrency companies points in the same direction as the analysis of the American giant Coinbase.
“In our opinion, the price discrepancy between stETH and ether reflects significant risks of liquidity, profitability, credit and even collateral. For example, liquid ETH on the Ethereum blockchain is only a small fraction of ETH’s total supply in circulation (3.8%), of which about 90% relies on Lido, “said David Duong, head of institutional research at Coinbase, in his blog.