Three Arrows Capital Sells Over 56,000 Staked Ether Amid Growing stETH Discount

Three Arrows Capital Sells Over 56,000 Staked Ether Amid Growing stETH Discount

Wallets believed to belong to major investment firm Three Arrows Capital (3AC) recently sold off over 56,000 Lido staked ether (stETH) leading to a further decoupling of the price relationship between the token and ether (ETH). 

Staked ether de-pegging from the price of ether is currently a cause for concern in the market amid fears the situation could cause a cascading liquidation among traders with stETH collateralized loans across decentralized finance (DeFi) lending pools.

3AC Believed to Have Market Sold 56,000 stETH

In a tweet by blockchain security firm PeckShield, 3AC swapped 22,830 stETH ($26.5 million) for ETH. Data from Etherscan show that wallets associated with the crypto hedge fund sold over 56,000 stETH tokens on Tuesday.

On-chain data shows the sales occurring in two separate transactions of over 17,800 stETH and 39,000 stETH respectively. The ETH received from the latter swap was used to shore up a loan position on Aave, a DeFi lending protocol. 

These massive swaps are the latest to happen for the liquid staking derivative token offered by Lido. Last week, wallets believed to belong to crypto fund Alameda Research sold off a similar number of tokens.

Whale wallets market dumping stETH has caused the price of the token to decouple from that of ETH. Following these massive selloffs, stETH is now almost at a 7% discount on the price of ether.

Data from the stETH liquidity pool on Curve also provide further insight into the developing situation. The ETH side of the pool is becoming increasingly depleted as the ratio of stETH to ETH is now almost 4:1.

The unbalanced nature of the stETH pool on Curve means that the liquidity for the stETH – ETH trading pair is becoming depleted. Large holders continuing to market dump the asset will only make future swaps more difficult to complete.

Celsius, the currently embattled crypto yield provider is also known to own a significant stETH stash. The continued decline in the price of the token could also impact the firm’s ability to honor redemption requests from customers.

If more large holders sell their stETH, the token’s price will likely decouple further from that of ETH. Such a situation will place traders with staked ether collateralized loans in danger of being liquidated. A series of cascading liquidations could follow such an event leading to even more losses in the crypto space.

Lido’s stETH

Staked ether is a derivative token offered by Lido, a liquid staking protocol, in exchange for the ETH tokens staked by users on the platform. Each stETH token is backed 1:1 by ETH staked via Lido on the Ethereum beacon chain.

This liquid derivative token has the advantage of being usable on DeFi protocols. Normal staking on Ethereum 2.0 locks the token until after The Merge has been completed. 

With stETH, holders can lock up their ETH on the Beacon chain while still being able to access yield on other DeFi protocols that support the token.

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