Celsius’ liquidity crunch is connected to Lido’s staked ETH as its earn strategy relies on the staked ETH that doesn’t lose parity with ETH but it has and now the customers want their money back so let’s read more in our latest cryptocurrency news.
It has been a month since the collapse of Terra and the chaos that is created in the marekt and now lido Finance and the staked ETH are in the center of a liquditiy crisis. The crypto lending company Celsius is one of Lido’s principal clients and one of the biggest holders of staked Ethereum. Staked ETH is supposed to be worth 1 ETH and hasn’t been for some time now. Staked ETH represents Ethereum that is locked up on the ETH beacon chain which is a network that will be merged with the Ethereum mainnet in an upgrade that transitions to a proof of work blockchain. Users need a minimum of 32 ETH to participate in the ETH 2.0 staking and to earn rewards but Lido Finance makes it possible for users to stake any amount of ETH and give users stETH in return. The stETH can be then lent, traded, and staked for other tokens.
Celsius does this with its own clients’ funds but now, a day after Celsius paused the customer withdrawals and transfers, there’s a big concern over the lending company’s exposure to stETH. The company has $475 million worth of stETH in a public wallet as per the blockchain research firm Nansen.
stETH had yet to pull even with ETH and at the time of writing, stETH was trading at 0.94 ETH and the former was trading below 1 ETH since last month when stETH was impacted by the Terra collapse. The content lead at Nansen Andrew Thurman added:
“They have also sent thousands of stETH to FTX in recent days, presumably to sell though we can’t verify that because it’s off-chain. They have likely been especially hard-hit by stETH losing its peg to ETH.”
Selling large quantities of stETH to get more liquid ETH will cause the price to crash further and will compound the liquditiy crunch that Celsius is facing. Celsius’ liquidity crunch is quite hard now and there are efforts to find other public wallets and account for the rest of the $10 billion in customer assets but for now, only $1.5 billion seem to have been accounted for.
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