Staked Ethereum arbitrage opportunity
Lido Finance now exchanges ETH for stETH. Lido’s staking feature compensates customers for locking up ETH on the exchange. Staked Ethereum is an Ethereum coin that represents ETH staked for a long time to sustain and safeguard the Ethereum blockchain network operating on the Beacon Chain. Beacon Chain is a proof-of-stake variant of Ethereum’s blockchain.
stETH operates as an IOU and might be exchanged into 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 is implemented post-Merge. The Merge has been a likely bet for months since Ethereum 2.0 seems imminent.
| Feature | $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 |
Arbitrage:
stETH and ETH should trade at a 1:1 parity, but market instability has sparked worries of a crypto liquidity crisis. Many owning staked Ethereum worried about market circumstances and dumped their stETH tokens out of fear of a bank run. This has depegged stETH ($1,315 on Lido) from ETH ($1,344). Many degens wagered on this arbitrage chance. Those that buy staked Ethereum at a bargain are betting on The Merge and hope to earn big profits when Ethereum 2.0 launches. stETH holders will get staking yields and automatically arbitrage the value difference between stETH and ETH after Merge.
“The Merge” risks
After delays, many are anxious about The Merge. The Merge’s “difficulty bomb” was rescheduled to August 2022 in June. Due to delays, Ethereum 2.0 has become a meme, forcing many to ask “Wen Merge?”
Luna, 3AC, Celsius, Voyager, and Vauld’s bankruptcy raises issues about Lido Finance. Customers may trade ETH for stETH on Lido, a crypto market leader. Lido has 31.5% of Beacon Chain deposits, or $4.4 billion. Several unsuccessful crypto firms have liquidated their stETH investments due to market volatility, prompting a depeg from ETH that many are trying to arbitrage. Interconnected crypto firms have produced chain reactions. Web 3 domino effect. Lido may fail until Ethereum 2.0 is published.
Macroeconomic issues may impact the cryptocurrency market. stETH buyers predict rising or stable markets. ETH may decline by The Merge, reducing arbitrage earnings. Anything is possible after 3-digit ETH this year.
Ethereum 2.0 is a brave chance. stETH buyers before The Merge may benefit. As demand for high-end graphics and mining cards drops, the market shrinks. The Merge may happen this year despite delays. The Merge gamblers might profit from stETH arbitrage if market conditions improve.
Source: Coinmonks – Medium
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