There is not enough liquidity in centralized and decentralized exchanges combined for the troubled crypto lender Celsius to sell their Lido staked ethereum (stETH) tokens on the open market, leaving over-the-counter (OTC) transactions as the only option, according to digital assets data provider Kaiko.
The report, written by Kaiko research analyst Conor Ryder, came to the conclusion by looking at how much liquidity is available in the stETH pool at the decentralized exchange Curve (CRV). In addition, it looked at market depth in the stETH/USD spot market on the centralized exchange FTX, which it said is the only spot market for stETH on exchanges.
None of these options would work for Celsius, the analyst claimed, saying that a sale on Curve would result in an exchange rate in the stETH/ETH market of just 0.84.
Similarly, a sale on FTX of the magnitude that Celsius needs to make would not go through “without nuking the price of stETH,” Ryder said.
It is widely believed to be necessary for Celsius to get rid of its holdings of stETH – a token that now trades at a discount to the staked ETH tokens they represent – in order to remain solvent.
‘A perfect storm’
According to the report, stETH, combined with poor risk management and a bearish market, created “a perfect storm with potentially devastating consequences” for Celsius.
The data shows that Celsius “couldn’t have sold all of their stETH on centralized or decentralized exchanges,” and that an OTC transaction is – or has already been – the only option for the crypto lender to remain solvent.
An OTC trade refers to a transaction directly between two parties, sometimes at negotiated prices that may differ from the price on the open market. The method is often used to facilitate very large trades in the crypto market.
“Even if they do survive this onslaught, I don’t see how anyone can trust the likes of Celsius to keep their assets safe going forward,” Ryder said.
According to him, “perhaps in a few years’ time we will look back on this as a watershed moment for decentralized finance adoption, but that’s probably just the optimist in me.”
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