Of late, the Ethereum (ETH) merge has been at the center of the crypto industry. So much so that the anticipation has had effects on ETH’s market. For one, Lido’s staked Ether (stETH) has deviated from ETH by 0.954 ETH, or by around 4.5%. According to Dune Analytics, this is the highest deviance since late June.
The de-pegging is most likely due to investors worrying about missing out on the Ethereum forked token, ETHPOW. Investors are trying their best to make the most out of the merge, and the same is reflected in the market behavior.
While many are in support of the merge, a handful of miners want to continue with the proof-of-work (PoW) chain. It is possible that the chain will split into PoS and PoW chains. ETHPOW would be the native token of the PoW chain. Moreover, Ethereum (ETH) holders are eligible to receive it for free. This is something that investors do not want to miss out on, as stETH holders will not be receiving the ETHPOW token.
According to Block Analitica on AAVE’s risk mitigation plan, as ordinary holders switch to ETH to get upside on ETHPoW, stETH may be subjected to additional pressure. Furthermore, the plan highlights that a discount of stETH to ETH would need to reach around 15% to start experiencing larger liquidations.
Due to worries that the increasing demand for ether borrowing will expose the decentralized lending and borrowing platform to liquidity challenges, Aave recently shut the door on traders trying to borrow ETH ahead of the Merge. According to Adam Cochran, the founder of cryptocurrency fund Cinneamhain Ventures, that decision prompted the bankrupt Singaporean crypto hedge fund Three Arrows Capital to withdraw staked ether (stETH) worth $33 million from Curve’s stETH/ETH pool.
Stablecoins should maintain a 1:1 peg with its external reference, however, stETH is not expected to do so with ETH. However, after the collapse of algorithmic stablecoin Terra and Three Arrows Capital earlier this year, the ETH and stETH discount came into the focus of analysts trying to track high stress in the digital asset markets.
At press time, Ethereum (ETH) was trading at $1,510.68, down by 9.6% in the last 24 hours.