As Staked Ethereum (stETH) Slumps, MakerDAO Adopts An Alternative

DeFi giant MakerDAO on Friday approved a proposal to adopt an alternative to Lido-Staked Ethereum (stETH) as collateral, following the token’s de-peg.

In a governance proposal that saw 64% approval by the MakerDAO community, the platform approved Rocket Pool ETH (rETH) as a new vault type, or collateral.

rETH behaves similarly to stETH, in that it trades at a 1:1 ratio with ETH, and can be redeemed for staked ETH once the merge goes live. The token is issued by staking protocol RocketPool, which is based on specifications by ETH creator Vitalik Buterin.

rETH is trading at $1,093, just a few dollars off ETH prices. In comparison, stETH is trading at 0.94 of ETH.

MakerDAO seeks to cut stETH exposure

The proposal to adopt rETH represents the latest step by the largest DeFi protocol to reduce the fallout from a potential insolvency of crypto lender Celsius and Three Arrows Capital.

Both the entities have a high amount of stETH as collateral, and were seen dumping stETH to cover their positions. A liquidation of the two would see a large amount of stETH, ETH and Bitcoin being dumped on the open market.

Earlier this week, MakerDAO had also disabled direct deposits with peer Aave, amid concerns over the latter’s high exposure to stETH. The exposure makes Aave extremely vulnerable to a Celsius or Three Arrows liquidation.

Is Lido Staked Ethereum a problem for markets?

While stETH has no direct impact on ETH prices, its use as collateral on DeFi platforms can eventually liquidate ETH positions, which in turn could impact prices.

A slew of liquidations since last week, following stETH’s de-peg, have severely impacted ETH prices. The depeg was trigger by one of the token’s largest holders, Alameda Research, offloading its stake.

Focus now turns to ETH and Bitcoin prices. If the two drop below key levels, the market could see another round of liquidations, which are expected to bring valuations to mid-2020 lows.

With more than five years of experience covering global financial markets, Ambar intends to leverage this knowledge towards the rapidly expanding world of crypto and DeFi. His interest lies chiefly in finding how geopolitical developments can impact crypto markets, and what that could mean for your bitcoin holdings. When he isn’t trawling through the web for the latest breaking news, you can find him playing videogames or watching Seinfeld reruns.
You can reach him at [email protected]

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