stETH, the Lido derivative token representing staked Ether, has traded roughly on par with Ether since its launch.
StETH has been used as collateral on open-source liquidity platform Aave among others, allowing supporters of Ethereum’s move to proof-of-stake to gain leverage on their locked crypto.
Based on its correlation with ETH and backing by ETH on Ethereum’s Beacon Chain, StETH has always been characterised as a safe asset. A stETH token can only be redeemed for ETH when the Ethereum network switches from proof-of-work to proof-of-stake and withdrawals are enabled on the new updated ETH 2.0 network.
Depegging
The so-called “peg” broke last week, as the value of stETH relative to ETH dropped.
In May, stETH started trading at about 97 cents per dollar of ETH. On Friday morning, it dropped to 95 cents. As of Monday morning, it was worth just above 93 cents per dollar.
stETH has become a problem for some of its largest holders – including Celsius, who recently halted withdrawals as their token price crashed.
The liquidity protocol Aave has asked its community to consider pausing the stETH market and halting ETH borrowings “as an extra precaution.”
With holders selling and the date of the Merge mired in uncertainty, there is now heavy selling pressure on stETH.