stETH vs. ETH 2

Q6. How has the price of stETH changed compared to ETH? Are there any events that triggered a big difference in price between the two tokens?

Note This artivle is higly inspired from my previous article on the same topic. Link

Introduction

Before diving into the analysis, let us first understand the basics.

It's assumed that you already have a basic understanding of ETH and its ecosystem, so we won't go into it. However, you might not be familiar with stETH and Lido finance. So, we'll start by understanding them and go on to analyze the relation between stETH and ETH.

Lido Finance and stETH

stETH is the abbreviation of staked ETH.

Lido is a staking solution for ETH 2.0. Staked ETH is usually not liquid in nature, that is, it can't be freely staked or removed, rather it has a certain lock in period. So, Lido finance solves this by providing 1 stETH for every ETH deposited, Your stacked ETH will continue to accumulate rewards while you also have the liberty and freedom to trade your ETH that is in the form of stETH. Users can use stETH in all of the same ways that they can use ETH: sell it, spend it and, since it is compatible to be used in DeFi, use it as collateral for on-chain lending.

You can redeem your ETH by depositing or returning your stETH.

Staked ETH vs ETH

Now that we know what ETH and staked ETH (stETH) are, we'll look at their relation with each other. Theoretically, for every 1 ETH deposited by users, 1stETH is minted, whose value in USD is the same as that of ETH. Basically, users will receive a token (stETH), which represents their ETH on the Ethereum beacon chain on a 1:1 basis.

Now, let us look at the historical prices of both stETH and ETH and see if there are any noticeable trends.

It is clearly visible that curves (price) of both ETH and stETH are very close to each other. Let us reinforce this by looking at how the stETH changes when ETH changes. That is we look at the ratio of stETH and ETH. Remember that theoretically it should be close to 1.

Well, the chart turns out to be exactly as expected. It can be clearly seen that the slope of the line is close to 1 always. Though there are some places where this is not entirely true, the deviation is too low.

The correlation coefficient also is very close to 1 ( actual value 0.9997543536), indicating a very strong linear relationship between the two tokens

Difference between stETH Price and ETH price

We could see in the above graph that though the line is linear in nature, it is not perfectly smooth indicting that there might be some differences in the price. So we will now look at the absolute difference between the prices of the 2 tokens.

This graph shows us something interesting, There was close to 140 USD difference on August 6 2021. But what could be the reason? After reading more about it, we came to know that Aug-05-2021 12:33:42 PM +UTC was when the London upgrade took place.

The $140 difference can be a reaction of the market to the London upgrade. London upgrade was about the fees. The London upgrade introduced EIP-1559, which reformed the transaction fee market, along with changes to how gas refunds are handled and the Ice Age schedule. If you would like to read more about the upgrade, you could go to https://ethereum.org/en/history/ .