Close Menu
    Ethereum

    Can liquid staking tokens depeg due to market volatility?

    By No Comments2 Mins Read
    sad altcoin, river, cryptocurrency, token, sadness, crypto market, stagnant, price analysis, analytics, stop, stopping, halt, delay, drop, fall, falling, stagnation

    30s Summary

    Investors are concerned about the price stability of cryptocurrencies associated with liquid staking protocols, currently valued at $45 billion. Concerns arise from the potential loss of price relationship between liquid staking tokens and Ethereum (Ether) in volatile market conditions. Despite price instability risks, this sector could have a safety net in the form of crypto arbitrage bots. Liquid staking is growing, particularly within blockchain protocols like Solana, and it remains the largest DeFi protocol category, accounting for $45 billion across 190 platforms.

    Full Article

    The liquid staking sector, with a value of $45 billion, has investors feeling uneasy about the future price stability of cryptocurrencies associated with these protocols.

    Liquid staking means investors can get more bang for their buck by getting an equivalent amount of the initial token that’s been staked, which can then be used elsewhere on decentralized finance (DeFi) apps.

    But it’s not all smooth sailing. Carlos Mercado, a data scientist at a crypto research firm, warns that liquid staking tokens and Ether could lose their price relationship in times of high market volatility.

    The price stability of Ether-based liquid staking tokens is very important because the total worth of these tokens in the market is $36.5 billion, according to CoinGecko.

    However, if these liquid staking tokens do lose their price bond with Ether, we could see a quick fix coming from crypto arbitrage bots. These bots see and make use of price differences between crypto assets, effectively righting the ship.

    Take the example of the Renzo ETH (ezETH) token on April 24, when it lost its 1:1 peg with the price of Ether, falling to $700 on decentralized exchange Uniswap while Ether was valued at over $3,100.

    This event was caused by a larger sell-off, resulting from Renzo’s airdrop campaign which led to a high number of liquidations across leverage protocols, according to an investor at Crypto.com.

    The growth of liquid staking isn’t limited to Ethereum, other leading blockchain protocols are also seeing significant uptake. In fact, on Solana, researchers believe liquid staking could increase by more than five times its current size.

    With the additional capital efficiency created by these protocols, liquid staking has become the largest category of protocol in DeFi, totaling a worth of $45 billion across 190 protocols according to DefiLlama data.

    Source: Cointelegraph

    Related Posts