Given the ongoing situations of the crypto market, a lot of crypto related firms and projects are on the verge of liquidity crisis
The chaos created after effects of Terra (LUNA) network’s collapse, along with other elements, had messed up the whole crypto market. However, it’s been only a month and now other projects seem to face the same ill fate soon. Given the situation of Lido Finance and its Staked Ethereum (stETH), there are possibilities that they could be at the center if another potential liquidity crisis hits the crypto market.
This could also create the similar ripple effect that the fallen Terra (LUNA) network did. For instance, prominent crypto lending platform Celsius is among principal clients of Lido Finance and its also one of the largest stETH holders. The problem could be found while looking at the fact that Staked ETH (stETH), which is supposed to be worth equal to 1ETH, has been losing its parity for a while now.
Fundamentally, Staked Ethreum (stETH) represents the locked up Etheruem on the beacon chain of Ethereum 2.0. It’s worth noting that Ethereum 2.0 is a highly anticipated upgrade that will soon be active following its merger with the existing Ethereum mainnet. The merger is supposed to bring a lot of upgrades including Etheruem network’s shift from being a proof-of-work network to proof-of-stakes network.
Now as far as the possibility of liquidity crisis at Lido Finance is concerned, users generally need a minimum amount of 32 ETH in order to participate in staking and earn rewards in Ethereum 2.0, but Lido Finance has changed this. Lido Finance simplifies for users that they can stake ETH of any amount. The Staked Ethereum (stETH) can be used to lend, stake and trade in exchange for other tokens.
Crypto lending platform Celsius precisely does the same with funds of its own clients. However, now after halting the operations related to withdrawals, swaps and transfers for its customers, Celsius has put almost everyone in shock and confusion. The company said that these withdrawal agreements would put Celsius in a somewhat better position to honor with time.
This came in the wake of growing concern of exposure to stETH of the lending company. Currently the company has stETH of about $475 million worth in a public wallet.
Source: https://www.thecoinrepublic.com/2022/06/15/is-the-crypto-market-going-to-witness-another-liquidation-crisis-this-time-lido-finance/