After the merge, what has been going on with staked Ethereum in all forms?
While the anticipated erge played out as a sell the news event for ETH, its staking derivative, Lido’s stETH, has managed to gain value in relation to ETH. Lido’s stETH token lost its parity six months ago reaching 0.93 ETH after the Terra collapse. Since then the token has traded below parity, more recently stETH managed to gain value and reached parity back again. This price rally has been reflected on the on-chain liquidity and volume for the asset.
Since the merge went well, stETH is being valued higher. The merge being successful has reduced the risk and uncertainty of proof of stake future rewards. Furthermore, staking yields increased post-Merge, due to MEV related rewards, this gave users further reasons to swap into stETH.
As it can be seen, the graph above depicts stETH price percentage deviation in relation to ETH price value. It's clear how traders positioned themselves towards the merge, just before the merge on Sept. 15, stETH price dropped in comparison to ETH. This can be assumed to be caused by several reasons, besides the merge uncertainty native ETH holders were eligible to receive an ETHW airdrop, while holders of stETH wouldn’t, this increased the demand to switch back into native ETH.
Passing the merge, we can see how demand for stETH spiked, traders moved back into stETH positions to continue collecting proof-of-stake yield. This created a price rally depicted on the graph above. stETH price after the merge spiked 3% from 0.971 ETH to 0.999 ETH. This change was reflected on other indicators as well.
The graph above shows Curve’s, DeFi’s second largest exchange with just over $5B in total value locked (TVL), ETH-stETH pool liquidity. As of the time of writing, this is the biggest liquidity for the ETH-stETH pair exchange. It can be seen on the graph how this liquidity more than doubled after the merge on Sept. 15. The pool surpassed having over $800 million in TVL to over $1.6 billion two weeks after the merge. Furthermore, the pool has recorded its three highest exchange volumes in the last two weeks, generating an increase in revenue for depositors.
This increase in TVL, further increases investors confidence in the pair's price stability. The higher the liquidity deposited in the pool, the bigger the exit door is if holders want to switch back into ETH. This price stability can be further analyzed on the pool’s liquidity comparison indicator.
The indicator above depicts the percentage distribution of aggregate liquidity in the Curve ETH-stETH pool. It can clearly be seen how the pool had an unbalanced distribution of 27% ETH and 73% stETH on Sept. 14, the date before the merge. Liquidity distribution started to change after the merge, and stands at 49% ETH and 51% stETH as of the time of writing. Small liquidity on the ETH asset could complicate the exit for stETH holders, since the smaller the ETH liquidity the higher the slippage incurred during trades.
In conclusion, stETH liquid staking derivative seems to be gaining traction. Investors' confidence in the stability of the token appears to be reinforced after analyzing on-chain indicators: this presents a healthier, more stable token with greater liquidity after the merge.