Hold up, what happened?
After dropping as low as 7% in mid-June, Lido Staked Ether (stETH) has regained its position and is now trading at 0.997 (1) per ETH. The token associated with Ethereum’s largest liquid staking program has regained its 1:1 Peg to ETH.
Ethereum owners who lock their ETH on Lido’s liquid staking platform (2) can receive stETH tokens in exchange. The stETH ERC-20 token can be traded similarly to Ether by holders. It seemed as though Lido DAO’s exclusive implementation of Ethereum might be the next DAO to fail for a while.
Instead, it has mainly made a full recovery. Naturally, the rebound happened simultaneously as the DAO raised Seth’s APR following Ethereum’s Merge, which was a clear attempt to enhance stETHbids.It is to note that StETH and LidoDAO’s LDO governance tokens do not interact in any way. Owners of LDO tokens do not get a share of the protocol’s earnings or have rights to the DAO’s treasury.
What About the Investors?
Those that staked in stETH did receive interest. One-way Peg has a two-way conversion promise. Possibly since early 2019, In Lido, 1 ETH staked is instantly convertible into one stETH; redemptions for ETH are not currently permitted. It means that stETH’s Peg is currently just one-way. When the Shanghai upgrade allows users to withdraw staked Ether, according to Lido, they will be able to exchange stETH tokens for ETH at a 1:1 ratio.
Although a logical market would dramatically reduce the time worth of money, stETH and ETH are trading within 0.1%. To put 0.1% into perspective, keep in mind that the current prime rate, the lowest interest rate at which USD may be borrowed commercially for one year, is 6.25% (3).
StETH traded significantly below ETH for several months after losing its Peg in May this year. After the Merge on September 15, 2022, it started to recover. It instantly grew once Lido upped the stETH staking APR from 3.85% to above 5.5%Even though a logical market would dramatically reduce the time worth of money, stETH and ETH are trading within 0.1%.In the months following the loss of its Peg in May of this year, stETH traded significantly below ETH. Upon the Merge’s completion on September 15, 2022, it started to recover. According to Lido’s website, the APR for Ethereum staking presently returns 5.51%
Was the Peg reclaimed?
According to some observers, institutional cryptocurrency traders like Alameda Research allegedly led stETH to unpeg in June by selling their stETH holdings. When ETH could be sold for a price more beneficial to stETH, they alleged that affluent traders began buying stETH from lenders like Celsius Network, selling ETH, and opening short bets on ETH.
The fact that the Merge was postponed twice by the Ethereum development team in 2022—in April and July—roughly coincident with the time that stETH was having trouble didn’t help. Additionally, 2018 was a horrible year for crypto. In May 2022, Terra LUNA collapsed (4), shocking the cryptocurrency market.
Celsius Network, Three Arrows Capital, and Voyager Capital declared bankruptcy, possibly taking the majority of investor deposits and loan collateral, including stETH, with them. Since its debut in May 2022, Lido’s ERC-20 token, stETH, has had a shaky performance. De-pegging it might have been fatal. Post-Merge, it is starting to bounce back. In any case, everyone who staked on Lido will have to wait until the Shanghai renovation sometime in 2019.