On Friday, the value locked in decentralized finance (defi) protocols fell to a low of $110.35 billion, after a total of more than $200 billion locked eight days ago on May 5 (TVL ). A particular defi protocol called Lido, a liquid staking platform and today the second largest defi application in terms of TVL size, has declined significantly over the past week, losing 49.66%.
stETH of the curve:ETH Peg Skews, Lido adds new liquidity incentive pool
While exposed to the Terra blockchain flaw, Lido’s pegged Ethereum tokens came under pressure due to an imbalance in Curve’s pegged Ethereum (stETH) and Ethereum pool. Liquid staking defi protocol Lido announced that it is using liquidity stimulus curve finance to improve the imbalance that has emerged around stETH:ETH connection.
“We deploy an additional Curve Finance pool to improve liquidity around stETH:ETH peg”, Lido tweeted on May 12, 2022. “This new pool will provide an additional 1 million LDO in incentives for the next week and is currently almost empty, indicating high premiums for first-time depositors.” Before the announcement, Curves stETH:ETH Pool showed off a 2% discount amid the chaos surrounding the Terra blockchain.
Crypto journalist Colin ‘Wu’ Blockchain explained what happened on Thursday. “That ETH/stETH Asset Ratio in Curve’s Largest TVL Steth (ETH+stETH) Pool is distorted,” the journalist tweeted. “ETH/stETH=36.48%/63.52%, people trade stETH back to ETH. Users using stETH for leveraged staking need to be aware of potential de-pegging risks.”
Team plans to migrate Curve and Balancer pools, Lido’s TVL loses $10.26 billion in a week
In the same Twitter thread, Lido detailed the company’s plan to mitigate the issue on Curve’s platform. “[The plan is to] migrate liquidity from the existing Curve and Balancer pools to a new one (recommended deposit ratio at current rate is 13 stETH per 1 WETH) to maximize rewards”, Lido added on Thursday. “The new pool contains 1,000,000 LDO for the next week of rewards.”
Some people questioned the move to create a new pool for the largest defi log in terms of locked value. “Is it a good idea? UST was attacked during liquidity migration,” according to one person asked.
Liquid staking app Lido also had significant exposure to the Terra blockchain and 49.66% of value has exited the platform since last week, according to defillama.com stats. Lido is currently valued at $9.13 billion but as of May 5 it was $19.39 billion. As of May 5, $10.26 billion has been removed from Lido’s TVL, leaving $4,130 in LUNA.
What do you think of Lido adding liquidity incentives to Curve’s pool? Let us know what you think about this topic in the comment section below.
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