stETH vs ETH Price Deviations

6 min readJun 13, 2022


# What is Lido?

Lido is a user-friendly, decentralized staking solution that lowers the barriers to entry for staking. It enables you to stake even a fraction of an ETH on Ethereum 2.0 and earn a passive income.

Furthermore, it takes away the pain of understanding the technicalities or keeping your system running 24×7. To make things better, Lido offers Liquid Staking to solve the liquidity problem in traditional staking explained above. As part of this, Lido offers you another ERC20 tokenstETH on a 1:1 basis for the ETH you stake. And just like your ETH, you can trade and transfer your stETH across decentralized finance.

Once you stake your ETH on Lido, you’ll be eligible for ETH rewards proportional to the size of your stake compared to the total staked ETH.

# Why Do We Need Lido

Ethereum’s demand and the number of transactions have scaled so rapidly that its existing architecture is unable to manage the load appropriately.

To make the network more scalable, Ethereum is transitioning to Ethereum 2.0, which will replace the proof-of-work protocol with proof-of-stake (PoS). Instead of mining, PoS requires network participants to stake their ETH to become a validator and approve transactions on the Ethereum blockchain to earn rewards for their contributions.

But the barriers to do so shoot past the skyscrapers!

The minimum you must stake to become an Ethereum validator is 32 ETH (worth almost $110,000 at the time of writing). In addition, you’ll need a decent amount of technical knowledge to set up and run an Ethereum validator system on your computer. You’ll also have to run your system 24*7 to avoid penalties for your absence. What makes things worse is that if you stake now, your 32 ETH will be locked until withdrawals are enabled on Ethereum 2.0… and that may take almost two years. That will be a hard goodbye, won’t it?

This is where Lido saves the day.


# What is stETH?

Users who stake their ETH into the Eth2 contract via Lido receive the liquid token equivalent in the form of stETH. For the sake of simplicity, this means that if you stake 1 ETH with Lido, you receive 1stETH in return.

stETH allows users to participate in the DeFi ecosystem — Yearn, Curve, Maker, Aave — whilst still accruing Eth2 rewards earned from staking during Phase 0.

stETH accrues staking rewards regardless of where it is acquired. This means that regardless of whether you acquire stETH directly from staking via, purchase stETH from 1inch or receive it from a friend, it will rebase daily to reflect Ethereum staking rewards.

This nullifies the downsides from staking into the Eth2 contract directly: illiquidity, immovability, inaccessibility. Instead of locking up your staked ETH, Lido allows you to put it to use so you don’t need to choose between Ethereum staking and DeFi participation.


# Observations

## Price Delta

Normally, the price of stETH tracks the price of ETH pretty closely but with the recent market-wide upheaval, withdrawals from other lending platforms and collapse of Terra, the price of stETH has fallen relative to ETH.

In the below chart, you can start to see the blue line (stETH) start to show up which means the price of stETH is lower than ETH.

On June 10, the price of stETH on Curve was 0.9474 ETH which represents a slippage of about 5% despite the fact that stETH is backed nearly 1:1 with ETH deposits. This also presents a nice opportunity to buy ETH at a discount for long-term believers. The current price delta levels haven’t been seen since March 2021. Until May, 2022 represented the smallest price delta between the two tokens.

Some of the causes of this price deviation have been large exits from stETH positions — notably Alameda and Celsius.

Lido’s response to the recent price fluctuation has been to reassure customers that stETH is still backed 1:1 by ETH and the price is just market finding its fair price.

## Curve Pool

The major cause of this price deviation is that the Curve pool has become heavily imbalanced as users continue to sell their stETH for ETH.

With more than $700m in liquidity (was more than $1Billion recently), the Curve pool is the deepest in the market. Therefore, it has a major impact on the overall market price of stETH. We can see that Terra crash a mass exodus from this pool especially ETH. The amount of ETH in the pool has dropped like a rock from nearly 800K to around 150K!

The balance of the pool as its most imbalanced state since Jan 2021. The pool is now made up of approximately 78% stETH and 22% ETH, which is causing the Curve algorithm to adjust the price.

## Uniswap v2 Pool

Various other DeFi exchanges — including Uniswap — plus a number of centralized exchanges also handle stETH but don’t have as large an impact as Curve does.

It’s interesting to note that after being almost dead for all of 2021 and beginning of 2022, this Uniswap v2 pool sprang back to life after Terra crash and now holds about 1500 tokens of each token. Because it’s a Uniswap pool, it is always 50–50 balanced and also a much smaller pool, it doesn’t impact stETH price as much.

## Weekly Swap Volume

After the Terra crash, we can see the subsequent weeks have a large swap volume—more than anytime in the history of these two tokens.

Furthermore, we can see that the amount swapped to ETH has increased in the recent weeks leading to imbalance.

Looking at the weekly swap count we can clearly see a rise above the mean with the weekly transactions growing from an average of 1000 to 4000+.

While most of the swaps have been done on Curve, we can see that the volume increase in the Uniswap pool as well.

## Top 10 holders over time

A great indicator of confidence in stETH can be assuaged from the largest holders over time.

Looking at the top 10 holders since Jan 1, 2022 we see that most of the top 10 holders are still holding significant amount. For e.g.

  • We see Anchor Protocol holdings disappear from top 10 but those are replaced by the Curve stETH concentrated pool.
  • In the last week, FTX has become a top 10 holder.
  • The holdings of wstETH contract have remained consistent over time.
  • AAVE’s stETH market contract is now the top holder of stETH tokens with ~1.4M tokens accounting for nearly 50% of the share amongst top 10 holders.

The large AAVE position was also cited as possible risk factor for further deterioration of the stETH / ETH peg.

## stETH Transfers

The amount of transfers in stETH have increased by a massive amount in this market with the Terra crash week showing a massive increase in the transfer volume. This past week ranks in #2 for stETH transfers.

  • Since June 1st, 2022, most amount of stETH has gone to one 0x220..96d4 wallet.
  • The Curve stETH pool is the next largest recipient. This is users swapping out of their stETH position.
  • These top two addresses account for almost $2 Billion at recent ETH price of $2000!

# Conclusion

It hasn’t even been a full month since, Terra crash we have new actors in the crypto space with all eyes on them — stETH and Celsius. Celsius particularly hurts pretty bad by this drama and the bank run on stETH might take them down.

If there is to be a bailout for Celsius, this meme captured their shaky position pretty well.




Product strategy by day. On-chain crypto analyst by night.