An arbitrage opportunity appears to be emerging already from the latest crypto meltdown, with traders pointing to the price disparity between Ether and a version of the second-largest digital-asset that has been at the center of the recent turmoil. The token, stETH, represents staked Ether on the Ethereum blockchain and counts troubled crypto lender Celsius and hedge fund Three Arrows Capital as major holders.
Sophisticated traders in particular are bullish on the discounted stETH, according to blockchain data analytics platform Nansen, which tracks addresses associated with more successful traders which it has labeled “Smart Money.” The number of those digital wallets holding stETH hit a high of 101 on Wednesday, up from a count of 88 on June 7.
Even under normal market conditions, keeping stETH’s value pegged to Ether is tricky as the staked token comes with counterparty risks and won’t be redeemable until sometime after the Merge, said BlockTower’s Rai. The Merge has been postponed several times and is now anticipated to take place later this summer or toward the end of the year. Possible “liquidation cascades” are also a concern, said Tarun Chitra, co-founder of crypto risk modeling platform Gauntlet.
The team behind Lido has been aware of the discount for months, Vasiliy Shapovalov — one of the platform’s main developers — told Bloomberg. Since May 13, its staking page has pushed out notifications encouraging users to buy discounted stETH on decentralized exchange aggregator 1inch “rather than staking directly with Lido.” The token was meant to be a solution to Ether staking, which is a way for investors to lock up their Ether and earn rewards ahead of the network’s Merge upgrade.