MakerDAO moves to cut stETH exposure by approving Rocket Pool ETH (rETH) as the new alternative.
Following the de-peg of stETH, MakerDAO approved a proposal on Friday to adopt an alternative to Lido-Staked Ethereum (stETH) as collateral.
The platform authorized Rocket Pool ETH (rETH) as a new vault type, or collateral, in a governance proposal that received 64 percent acceptance from the MakerDAO community.
rETH functions similarly to stETH in that it trades at a 1:1 ratio with ETH and may be redeemed for staked ETH after the merge is completed. The token is issued via the staking protocol RocketPool, which was designed by ETH founder Vitalik Buterin.
rETH is currently selling at $1,093, just a few dollars below ETH pricing. In comparison, stETH is now trading at 0.94 ETH.
The adoption of rETH is the latest action taken by the major DeFi protocol to mitigate the consequences of the impending insolvency of crypto lenders Celsius and Three Arrows Capital.
Both entities hold large amounts of stETH as collateral and have been seen dumping stETH to cover their positions. In the event of a liquidation, a huge amount of stETH, ETH, and Bitcoin would be dumped on the open market.
MakerDAO also prohibited direct transactions with peer Aave earlier this week, citing concerns about the latter’s heavy exposure to stETH. Aave is very exposed to a Celsius or Three Arrows liquidation as a result of his exposure.
Is Lido Staked Ethereum A Problem For Markets?
While stETH has no direct impact on ETH prices, its usage as collateral on DeFi platforms may eventually result in the liquidation of ETH positions, which may have an impact on prices.
Following the de-peg of stETH last week, a torrent of liquidations has negatively damaged ETH prices. The depeg was triggered by Alameda Research, one of the token’s largest holders, selling its investment.
The focus is now on the pricing of ETH and Bitcoin. If the two go below critical levels, the market might witness another round of liquidations, bringing values to mid-2020 lows.