Introduction

Lido is a liquid staking solution for ETH 2.0 backed by industry-leading staking providers. Lido lets users stake their ETH - without locking assets or maintaining infrastructure - whilst participating in on-chain activities, e.g. lending.

Lido attempts to solve the problems associated with initial ETH 2.0 staking - illiquidity, immovability and accessibility - making staked ETH liquid and allowing for participation with any amount of ETH to improve security of the Ethereum network.

stETH is a token that represents staked ether in Lido, combining the value of initial deposit + staking rewards - penalties. stETH tokens are minted upon deposit and burned when redeemed. stETH token balances are pegged 1:1 to the ETH that is staked using Lido. stETH token balances are updated when the oracle reports changes in total stake every day.

stETH tokens can be used as one would use ETH, allowing you to earn ETH 2.0 staking rewards whilst benefiting from, among other things, yields across decentralised finance products.

Methodology

Two CTE's will be created for each asset, with symbol = 'ETH' for ETH and with token_address = '0xae7ab96520de3a18e5e111b5eaab095312d7fe84' for stETH. Timeframe will be since January 1st, 2021.

Then, both CTE are joined and the difference in price as a percentage is calculated as (stETH_price - ETH_price)/ETH_price*100.

Results

Figure 1. shows the price of ETH and stETH over time in one axis and the percentage difference between both.

There are two clearly defined periods:

• first period until mid October 2021 where a high volatility in price happens. The price difference reaches 8% (May 16th) and over -10% (August 6th).

• second period from mid October 2021 where the volatility is reduced drastically, the price difference being over -1%.

Figure 2. shows the correlation between the assets. As expected, they are very strongly correlated. There is an area where ETH price has a value between 2960€ and 4000$ where the variance is bigger, but otherwise the correlation line es very good.

Conclusion

The price of stETH has seen turbulent times until October 2021 when its volatility was drastically reduced and the difference to its ETH peg was kept between -0.5% and -1%. Since Januray 2022, this has improved even further and it's now below -0.5%.

The difference in price on May 16th could have been caused by the effect of the bear market after the ETH price all-time high that happened some days before but most probably it was triggered by the loss of 38,178 of Stakehound's staked ETH at custodian Fireblocks (company statement).

The launch of bETH in Anchor (wrapped stETH on Terra's Network) on August 2nd might have triggered new market opportunities which caused the big dip of -10% in August 6th

No concrete piece of news was found to explain the stable peg since October 2021. It looks like Lido managed to have enough ETH staked backing up the stETH peg to have an stable mechanism to absorb supply and demand of stETH and keep the price where planned.