May 13, 2022: Concentrated stETH 🩺🌊
LIDO Acts to Reinforces Peg + Which Protocols Moved While Terra Burned
While we don’t yet have a clear picture of how the Terra collapse will affect the TradFi players who had exposure, the on-chain repercussions are clear much quicker. A lot of activity happened under the radar this past week while most people were in shock.
LIDO
Perhaps the most notable is the possible depeg of Lido Staked Ether ($stETH). Lido’s Staked Ether option has become by far the most popular way for users to prepare for the upcoming Merge. At the moment, Lido has hit 14th on CoinGecko’s list of market cap.
For this reason, the health of stETH is becoming systemically important to Ethereum. Hence the concern when stETH peg has started to suffer lately.
The cause appears to be fallout from the Anchor collapse. About $275MM stETH is still precariously stuck within the Terra chain.
Is $stETH floating off peg an issue? It’s debatable.
Wordchad Arthur Hayes popularized the concept of the ETH staking as akin to a bond, and argues it’s more puzzling that ETH:stETH should trade at parity. The idea of buying stETH, the riskier asset, at a discount today and possibly getting a premium after the merge makes more sense to this analogy.
Nonetheless, Lido has positioned stETH as a liquid staking token, and they are committed to keeping this peg. Lido acted quickly to promote repegging through a clever deployment of a secondary Curve pools.
To enter the new stETH Concentrated pool without slippage, you can enter at a 13:1 stETH:WETH ratio and get your chunk of a million dollars worth of $LDO rewards over the next week. The pool features a significantly larger value of A (1000 instead of 50), which has the effect of holding the peg better under large imbalances. In this way, the two pools can theoretically provide an arbitrage mechanic to strengthen the peg.
A Yearn vault also popped up concurrently.
Time will tell the results of the experiment. At the moment the new pool already has $250MM worth of liquidity interested in soaking up the rewards. In the wake of the Terra disaster, it’s encouraging to see the Lido team jumping quickly to forestall any potential problem.
We note that concerns about Lido’s monopoly are still being raised, and any position within either ETH or stETH are exposed to potential risks that may arise from centralization.
If you’re interested in digging further into the Lido situation, here are some good resources:
From the Ashes
Terra’s empire is still smoldering, but DeFi presses onwards. We’re particularly sympathetic to the builders who bravely delivered product this past week. Launching new concepts and services while most users are still surveying the rubble is a tough task.
Anybody who’s busy making moves is doing great work at playing the game. For one example, observe how noted vegan SBF shored up his influence this past week.
With that in mind, we review below a snapshot of updates from around the cryptocurrency world you may have missed in the past week.
More than perhaps anybody else, Justin Sun took advantage of the chaos to grab the spotlight. In a time when everybody was peak bearish, his Excellency deftly grabbed attention with notably large buys of BTC and USDT.
Launching what’s been likened to a $UST fork (with an absurdly high 40% APR!) at a time that Terra was self-immolating was a particularly bold move.
To be clear, we wouldn’t recommend anybody go anywhere near this one. If we haven’t learned our lesson from the Terra collapse, we deserve our apocalyptic bearscape.
However, purely from PR perspective, you have to be impressed by Sun’s ability to capitalize on the crisis. Admire it, but like Icarus, don’t fly too close to the Sun.
Bancor, a single-sided staking protocol, rolled out their v3 launch this week and quickly collected $100MM TVL.
Railgun, a PriFi project enthusiastically touted by the flywheel protector-in-chief, launched their app and made an historic first transaction.
While everybody was distracted, a reshuffling occurred in the Dopex Wars as Plutus scooped up a Jones DAO dump.
One possible event for degens to get excited about, JPEG’d liquidated 9 punks in the market collapse. If the vote proceeds at its current pace, the protocol will soon be listing them for auction.
Closer to the flywheel, FRAX has been quietly making moves. Through multiple bear markets now, FRAX has held its peg without drama.
Behind the scenes they’re shifting things up after the Terra implosion.
The FRAX on-chain activity suggests big moves.
Also around the flywheel ecosystem, some major changes among the handful of protocols whitelisted to lock CRV. MagicCRV passed voting, meaning some new opportunities as the protocol builds back from its January crash.
Meanwhile StakeDAO’s liquid lockers all passed governance, meaning protocols will soon have the flexibility to rent governance power on demand.
Keep track of all wrapped CRV token pegs on this new site
StakeDAO has also been busy forging alliances with other protocols like Alchemix and LendFlare.
Finally, as we survey the wreckage, we note Curve’s position around DeFi has strengthened. Curve volume has been through the roof lately, a fact you may have noticed if you are keeping track of trading fees on the site lately.
The great @nagaking teased some research demonstrating how different protocols held up in the depeg.
Probably too soon to assume these trends are permanent, but if Curve continues to serve as the central trading hub for DeFi, we may expect good cash flow as DeFi rebuilds.
Disclaimers! Author has a position in flywheel assets (including the stETH pool), as well as Dopex, JPEG’d and Bancor