Arbitrage opportunity with $stETH (Ethereum staking on Lido.fi)
Lido Finance currently exchanges ETH for stETH. Lido’s staking feature compensates clients for locking ETH on the exchange. Staked Ethereum is an Ethereum coin representing ETH long staked to maintain and safeguard the Ethereum blockchain network operating on the Beacon Chain. Beacon Chain is a proof-of-stake variant of the Ethereum blockchain.
stETH works like an IOU and can be exchanged for ETH when the Ethereum network switches from proof-of-work to proof-of-stake. Many users plan to convert their stETH back to ETH when Ethereum 2.0 rolls out after the merger. The merger has been a likely bet for months as Ethereum 2.0 seems imminent.
| Characteristics | $stETH |
|---|---|
| Blockchain | Ethereum |
| Coins | ETH, stETH |
| Difficulty | Medium |
| Yield | – variable |
| Vesting period | No |
| Wallets |
MetaMask, WalletConnect, Ledger, Coinbase, Trust, imToken, Ambire, Blockchain.com, Exodus, Brave, Coin98, MathWallet, Tally
|
| Exchanges | Lido.fi |
Arbitration:
stETH and ETH should be trading at 1:1 parity, but market instability has raised concerns of a crypto liquidity crisis. Many staked Ethereum owners became concerned about market circumstances and dumped their stETH tokens fearing a run on the bank. This has unpegged stETH ($1,315 on Lido) from ETH ($1,344). Many degens bet on this arbitrage opportunity. Those who buy staked Ethereum at a bargain price are betting on The Merge and expect to make big profits when Ethereum 2.0 launches. Holders of stETH will earn staking returns and automatically arbitrate the difference in value between stETH and ETH after the merger.
Risks of “The Merge”
After the delays, many are looking forward to The Merge. The Merge “difficulty bomb” was rescheduled for August 2022 in June. Due to the delays, Ethereum 2.0 has become something of a meme, forcing many to wonder “Wen Merge?”
The bankruptcy of Luna, 3AC, Celsius, Voyager, and Vauld raises issues for Lido Finance. Clients can exchange ETH for stETH on Lido, a crypto market leader. Lido holds 31.5% of the Beacon Chain’s deposits, or $4.4 billion. Several unsuccessful crypto firms have liquidated their investments in stETH due to market volatility, causing an ETH de-pegging that many are trying to arbitrage. Interconnected crypto companies have produced chain reactions. Web 3 ripple effect. Lido may fail until Ethereum 2.0 is released.
Macroeconomic problems can affect the cryptocurrency market. Steth buyers predict bullish or stable markets. ETH may decline from The Merge, reducing arbitrage gains. Anything is possible after 3-digit ETH this year.
Ethereum 2.0 is a brave opportunity. Buyers of stETH before The Merge can benefit. As demand for high-end mining and graphics cards falls, the market shrinks. The merger may happen this year despite the delays. Merge players could benefit from stETH arbitrage if market conditions improve.
Source: Coinmonks – Medium
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