DeFi juggernaut MakerDAO on Friday authorized a request to move from Lido-Staked Ethereum (stETH) to Rocket Pool ETH (rETH) as the new collateral in the governance proposal that received 64% support from the community.
rETH acts similarly to stETH in that it will trade 1:1 with Ethereum and be redeemable for the staked ETH. The staking protocol RocketPool is based on Ethereum founder Vitalik Buterin’s specifications.
A staked quantity of ETH is represented by the token “stETH” on the Lido staking network. Its peg to Ether (ETH) has been shaky for a few weeks, and it is now trading at a discount of roughly 6% to ETH’s price. One of the claimed reasons for Celsius pausing withdrawals was that it had put a substantial sum of user money in stETH.
The MakerDAO’s latest effort to lessen the effects of a probable bankruptcy of cryptocurrency lenders Celsius and Three Arrows Capital is the suggestion to embrace rETH.
Both organizations were spotted dumping stETH to cover their positions while holding significant amounts of stETH as collateral. If the two were to be liquidated, a considerable sum of stETH, ETH, and Bitcoin would be dumped on the open market.
Additionally, as the likelihood of Celsius’ liquidity problem increases, MakerDAO has also decided to stop AAVE from generating DAI for its lending pool without collateral. Aave is vulnerable to a Celsius or Three Arrows liquidation because of its exposure to stETH.
The DAI Direct Deposit Module (D3M) for Aave would be temporarily disabled according to a Tuesday governance request by DAO member prose11 as Celsius borrowed $100 million in DAI collateralized by stETH which would be in danger of liquidation if Celsius fails.
Although stETH doesn’t directly affect ETH prices, using it as collateral on DeFi platforms may eventually result in liquidating ETH holdings, which may influence prices.
Following stETH’s de-peg last week, a wave of liquidations has significantly lowered ETH prices. One of the primary holders of the token, Alameda Research, sold its share, which ultimately led to the depeg.
At press time, Ethereum was trading at $1,099.88, down by 30% in the last seven days.