The DeFi space suffered a major loss as concerns over the Celsius suspension and stETH destabilization grew. DeFiLlama’s data reveals that the locked total value (TVL) in DeFi has decreased by about 20% over the past 48 hours. Accordingly, DeFi TVL dropped to $79 billion, a one-year low. So what is Celsius and stETH at the center of the crash? What is behind the liquidation? Let’s examine it together.
What is Celsius?
Celsius is a Blockchain network. The network allows users to receive interest and secured loans on their deposited cryptocurrencies. Accordingly, Celsius is quite similar to lending protocols commonly found in the crypto space. However, it has a feature that distinguishes it from other debt platforms. The network is controlled by regulators. It is also fully SEC compliant. Project; retains the benefits seen on traditional platforms, such as fast, free transactions. It also aims to attract users by offering high interest returns on deposits. Celsius offers the opportunity for existing crypto investors who want to get a loan to buy dollars without converting their crypto assets into cash.
What is stETH?
stETH is a token representing Ether staked on DeFi network Lido. Therefore, stETH is a cryptocurrency that allows you to earn DeFi return rewards. Users who stake their ETH on the Eth2 contract via Lido receive an Ethereum equivalent token in the form of stETH. This new stETH token tracks the Ether price in a 1:1 ratio. Your stETH balance is updated daily at 12:00 UTC to reflect earned stake rewards. Lido’s stETH token can be used in the same way as ETH. In addition, owners can earn rewards through integrated platforms such as Curve and SushiSwap. Finally, stETH allows them to earn Eth2 staking rewards.
As it is known, the Ethereum network is about to switch to Ethereum 2.0, which it has been working on for a long time. When this happens, Ether will switch from Proof-of-Work mechanism to Proof-of-Stake. This will save the network from slowness and high transaction fees, one of the biggest problems it is currently facing. In addition, users will secure the network and verify transactions by staking their ETH.
Celsius and stETH created chaos in DeFi markets
The simultaneous emergence of several factors triggered fear in the DeFi field. Celsius’s recent withdrawals caused stETH to lose pegged to ETH in the secondary markets. Thus, a shocking selling pressure began in ETH across the broader crypto markets. Everyone knows that Ethereum is the largest Blockchain according to the DeFi rating. Along with this decline in the value of ETH, huge losses have emerged in the broader market.
However, most of these losses are still around Celsius, stETH and Lido. Lido, once the largest DeFi protocol ever, has fallen into the top three. Also, Lido lost about 28% of its locked total value (TVL) in the past week. Thus, it suffered the greatest loss among its peers. The DeFi platform is trying to mitigate the downside from a potential stETH crash. However, 99% of its $5.7 billion TVL comes from stETH on the platform. MakerDAO, the largest DeFi platform in the TVL space, left 65 thousand ETH to prevent the platform from being badly affected. This signals more market volatility for DeFi.
Is a second Terra case possible?
As a result of the decrease in the locked total value (TVL), DeFi may witness the second biggest sale since May. As Kriptokoin.com also reported, in May, Terra’s stablecoin UST lost its peg to the dollar. As a result, a massive sell-off had begun in the overall crypto market. Terra suffered a $70 billion collapse in its total valuation over 10 days. Blockchain, at its best, was the second largest DeFi platform by TVL.
Now developments in Celsius, Lido and stETH are likely to produce the same results. Comparisons are made between the two, given that the Lido and Celsius network retains several large investors. Major investors in Terra, such as Three Arrows Capital and Jump Crypto, are also in stETH and Lido. A stock market crash combined with weak macroeconomic conditions has already heavily depressed crypto valuations. Market volatility is likely to increase ahead of the Fed meeting this week.
