The Relationship Between The Celsius Liquidity Dilemma And Lido’s Staked Ethereum

Blockchain, News, Opinion | June 24, 2022 By:

Crypto has had a hard time since the beginning of May. As a result of more than one month’s market crashing, many digital assets have seen serious losses. There are still discussions about what made the crypto market decrease in value so much.

As there can be several factors, one of the most recent reasons is the statement of Celsius, which started to pause giving loans to the crypto investors. As the company didn’t exactly say the real reason for doing so, analysts think that the company no longer has enough reserves for the crypto enthusiasts. Of course, the statement of the company had a big influence and it was reflected in the crypto prices. Nowadays, Celsius is one of the partners of staked Ethereum, which is often called stEthereum. 

So what is it exactly? A coin known as Staked Ethereum (stETH) is meant to be equal to ether in value. After many weeks of being traded at a discount to the second-largest cryptocurrency, a liquidity crisis has emerged in the crypto market. In order to engage in ETH 2.0 staking and gain rewards, users typically require a minimum of 32 ETH (equal to around $40,000). It’s possible to stake any amount of ETH using Lido Finance. As a result, users get given stETH tokens as compensation for their “liquid staking.”

Celsius, stETH, And Crypto Crash

You may wander what is the exact link between Celsius and stETH. Cryptocurrency investors lock up their coins for a period of time in order to help keep the network safe and secure. In exchange, they earn interest-like returns. “Proof of stake” is the term used to describe this process. 

Celsius provides customers with loans with the money it receives from its own customers. In contrast, only one day after Celsius ordered a halt to all client withdrawals (including swaps and transfers), there’s rising worry about the loan firm being exposed to StEth. In a public wallet, the corporation holds at least $475 million in stETH, according to reports. Until the so-called “merge,” when Ethereum moves from proof-of-work to proof-of-stake, holders of StETh tokens will be unable to exchange them for ether. Because of the several changes in the crypto market, the majority of digital assets started to decrease in value. For this reason, those investors who want to make money in the moment of a crypto crash and avoid further losses use Bitcoin Smarter, which makes the trading process automated. In addition, with the help of this AI-generated tool, traders can forecast future price changes in the market and get the most out of their trading process. 

As a result, unless they want to sell their stETH on other platforms, investors are left holding the bag. The price of stETH would fall even more if huge volumes of it were sold to gain more liquid ETH. It would exacerbate the liquidity issue Celsiusis currently experiencing. For USDC, they could have used UST (Luna’s stablecoin) and stored it there, or they could have used ETH and put it in stETH. Because of this, all Celsius users will feel the pain if and when the value of all crypto drops and everyone wants their money back.

Moreover, stETH has been caught in the turmoil of unfavorable news that has engulfed the crypto industry. Because of the Federal Reserve’s higher interest rates, investors have fled to more secure and liquid assets, causing problems for some of the industry’s larger corporations.

What Is Exactly Going On?

Because of the crypto crash, many investors started panicking and selling their assets, in order to safeguard their funds and avoid losing their money. As a result, the crypto market still continues to crash. Because of Celsius’ statement, the fear among the investors still continues to escalate. So, those cryptos that are linked to Celsius, are decreasing in price levels. One of these coins is stETH. 

Because of the possible difficulty bomb activation, many investors started to invest their money in stETG, with the help of the crypto companies, in this case, the company is Lido. However, as the implementation of the difficulty bomb is delayed for an unknown period of time, the fear among the investors atarted to expand once again. ETH switching from PoW to PoS on the one hand can be a beneficial event for those investors who want to make their investment more secure. However, for those who want to mine more ETH, this plan isn’t cost-effective. As long as this plan is not implemented, investors aren’t able to take advantage of their stETH. And as the crypto market continues to crash, stETH among other cryptocurrencies starts to decrease in value. 

So, what will happen in the future? There are two main answers to this question. Investors, who are more optimistic, think that the crypto market crash is a temporary and unavoidable thing that may happen from time to time. The main argument is the past data, which shows the ups and downs of the marketplace. However, there are some pessimistic investors as well, who think that this can be the deadly year for the crypto market and most of the tokens will disappear. There will only stay some of the major cryptos, however, whether or not their prices will increase in value, is under question.