Large institutional investors such as Alameda Research and Three Arrows Capital used a trading pool to dump their “stETH” tokens, but the pool is now completely depleted and extremely imbalanced, potentially trapping retail investors as well troubled crypto lender Celsius.
However, the so-called Curve liquidity pool, which investors used to sell their stETH, is rapidly depleting, a dynamic that could compel future sellers into less-transparent over-the-counter markets, where discounts could be even greater.
On Curve, the pool in question allows investors to convert stETH to ETH. The total value locked (TVL) – a standard measure of gauging the scale of these protocols in decentralized finance – has fallen to $621 million from $4.6 billion since early May, according to statistics. It’s also highly unbalanced, with about five times as much stETH than ether, making large-scale token swaps expensive or difficult.
Until the Terra blockchain implosion last month, stETH and ether were exchanged at a 1:1 ratio. But then there was a 2-3 percent pricing difference. Following the financial woes of crypto lender Celsius and hedge firm Three Arrows Capital, both large holders of stETH, the gap expanded to 5-6 percent by early June.
Big Players Dumped stETH Through Curve
Some major holders of stETH sold it for ETH, largely through the Curve pool. According to Kaiko, the stETH-ETH Curve pool accounted for 98.5 percent of all stETH decentralized exchange trading volumes in the recent few months, whereas centralized exchange trade was negligible.
According to the Kaiko article, Amber, a crypto investment platform, received $160 million in just a few days in early June. stETH was sold for $88 million by Alameda Research, a digital asset trading firm. In May, Three Arrows Capital, a hedge fund facing insolvency, redeemed about 400,000 ETH and stETH tokens from the protocol.
Average investors now trapped
Celsius, a major crypto lender that has been under fire for halting withdrawals due to “extreme market conditions,” may be stuck with its stETH holdings. According to Ape Board, a portfolio tracker from blockchain intelligence firm Nansen, Celsius still possesses at least 409,000 stETH, worth around $413 million at current rates.
Average investors with stETH may have even fewer options, as they are often unable to trade on over-the-counter exchanges. According to the Kaiko research, centralized exchanges lack a sufficient market for sellers of the stETH-ETH trading pair.