Celsius and the Risk Posed by Staked ETH Losing its Peg
Categories: US ETHERUM NEWS
Celsius and the Risk Posed by Staked ETH Losing its Peg
After pausing all withdrawals, swaps and transfers between accounts on June 13, there are now fears the popular staking platform Celsius is facing a more serious liquidity crisis triggered by the declining value of Lido Finance’s staked ETH token relative to the value of real ETH. If the value of staked ETH doesn’t regain parity with ETH, it is feared Celsius may be left unable to pay out all users wanting to withdraw their funds.
Staked ETH (stETH) is an artificial representation of ETH created by the DeFi platform Lido Finance. When users stake their ETH through Lido, it’s not locked up as it would be if it were staked directly to Ethereum 2.0.
Regular crypto users along with other DeFi platforms can use Lido Finance to stake real ETH in return for stETH. Celsius is one of Lido Finance’s major clients, staking large amounts of ETH through Lido on behalf of its users, and in the process generating staking rewards, with which it in turn pays its users’ annual percentage yield (APY).
This system of liquid staking works well while stETH and ETH maintain parity. But once stETH starts to drop in value, as it now has, the system starts to unravel.According to blockchain analytics platform Nansen Research, Celsius has over US$475 million worth of stETH and has been sending large quantities to exchanges over the past few days, presumably to sell in an attempt to increase liquidity.