DeFi lending platform Celsius Network stopped withdrawals on its platform earlier this month. The decision of the project was taken due to the liquidity crisis after stETH lost its stability. However, the event that is likely to trigger a new Terra crash in the cryptocurrency market is an opportunity for some. According to professional crypto analyst Ark Invest, the Celsius event creates an Ethereum arbitrage opportunity for investors. The expert explains the reason for this as the altcoin stETH, which follows the Ethereum price at a ratio of 1:1, is traded at discounted prices. Here are the details…
Celsius and stETH
Ark Invest analyst Frank Downing evaluated current market conditions in a news release. Downing, Celsius; stated that it generates returns through corporate lending, mining and decentralized finance (DeFi) loans. He then added that some of this return is generated with stETH on the Beacon Chain. For those who don’t know, stETH is fixed at a 1:1 ratio to the Ethereum price. It is also a cryptocurrency affiliated with Lido Finance and represents staked ETH.
Accordingly, approximately 41% of Celsius’s DeFi deployments were located in stETH. 30% was in Ethereum’s Proof-of-Stake deposit contract. Second, it will not be liquid until Ethereum migrates to a Proof-of-Stake consensus algorithm on the mainnet. This move is expected to take place in 2022. However, the altcoin allows ETH stakers to maintain liquidity. In addition, stETH can be freely traded on the market.
Altcoin stETH provides arbitrage opportunity for ETH
According to the analyst, Celsius aims to meet the withdrawal requests of its customers. For this, it moves the altcoin stETH in its main wallet to wallets belonging to the cryptocurrency exchange FTX. The move has affected the price of stETH. As a result, stETH fell to 0.934 ETH while being supported by ETH at a ratio of 1:1 and lost its stability. At this point, the analyst stated that the current drop offers an arbitrage opportunity for patient investors who want to hold their stETH until the Ethereum Merge raise. As Cryptokoin.com reported, with the Merge upgrade, users who stake ETH and buy stETH altcoins will be able to sell their assets.
Celsius could trigger a new crypto crash
We mentioned that Celsius has stopped withdrawals. The platform made this move to gain time to exit their risky positions. Otherwise, there was a chance of a major purge. Such a liquidation would have crashed Celsius and the overall cryptocurrency market. As a result, the market, already under heavy regulatory pressure due to the Terra incident, could enter a new regulatory crisis. Speaking to the Financial Times, GlobalBlock analyst Marcus Sotiriou said the following about the deterioration of stETH-ETH stability:
“Concerns have grown that if clients try to use positions, Celsius will run out of liquid funds to repay positions.”
