LIDO Peg Risk Indicator

LIDO issues stETH in exchange for users depositing their ETH to stake with the protocol at a 1:1 exchange rate. After v2 is released in mid-May, users will also be able to redeem their stETH 1:1. The quantity of stETH grows as a function of staking rewards and slashing penalties. It can be used in DeFi as collateral for loans or to provide liquidity in DEX pools. Accordingly, it is important that it maintains its 1:1 peg to ETH. If the peg is lost, loans could be liquidated and DEX pool liquidity will become imbalanced.

The stETH price has mostly tracked ETH since inception, albeit at a slight discount. Here's what the actual peg looks like.

And here is its histogram. It appears normally distributed. So we can use 1 and 2 standard deviations for yellow and red alerts, respectively.

In the early days of the 2021 crypto bull-run, stETH often lost its peg, likely due to uncertainty around when users could redeem their staked ETH. Fast forward to 2022, the crypto world witnessed several significant bankruptcies and bank runs, with Celsius and UST being the most notable in May/June. The stETH peg was shaky again during this time as redemption remained uncertain. However, things are looking up! By mid-May 2023, stETH is expected to be redeemable, despite a variable processing delay, giving users an incentive to buy under peg. This development should help strengthen the peg going forward.

flipside

flipside

LIDO Peg Risk Indicator