Lido Staked Ethereum (stETH), a token representing staked Ethereum on the defi platform Lido, has depegged significantly in the last 24 hours.
Lido Staked Ethereum (stETH) has dropped nearly 4% in the last 24 hours to $1,695.28. It is expected to trade at a 1:1 ratio to Ethereum, which is currently trading at $1,771.43. On Lido, the token can be redeemed for ETH.
According to crypto researcher @SmallCapScience in a Twitter thread, the token’s depegging is the result of a large imbalance in a Curve Finance liquidity pool. The pool’s imbalance is likely to worsen, resulting in additional stETH losses.
This has been exacerbated by Alameda, one of the largest holders of stETH, selling $1.5 billion worth of the token–all of their holdings. This could spark a larger bank run, causing prices to plummet to levels similar to those seen in Terra.
Alameda was one of the top seven defi token holders. Their $1.5 billion dumps, largely through swaps on Curve Finance, could spark a larger bank run.
Several parties involved in the LUNA crash, including venture capitalists Jump, Three Arrows, and Andreessen Horowitz, are also major holders of stETH.
“The canary in the coalmine for me was  @AlamedaResearch exiting their position yesterday. Alameda is always early to big moves…
-@SmallCapScience
Other major holders selling, particularly through Curve, could cause a further imbalance in the stETH liquidity pools, lowering the token’s value. As a result, redeeming the token for ETH would be costly, especially for platforms that have invested customer funds in stETH.
This could spark a bank run, causing stETH to depreciate as much as TerraUSD.
According to @SmallCapScience, defi platform Celsius has a $1.5 billion position in stETH, with approximately $1.2 billion in debt to its customers.
If the price of stETH continues to fall, Celsius will be unable to honor customer redemptions. Data show that Celsius has consistently lost liquid funds due to hacks, exploits, and the Terra crash, exacerbating the situation.
Given that investors are attempting to redeem their positions at a rate of approximately 50,000 ETH per week, the firm may soon freeze redemptions.
CEL, the company’s native token, is already reacting to the potential scenario. The token has dropped nearly 20% in the last 24 hours to $0.5391, its lowest level since late 2020.
