Ethereum: the last test before the merger

Test networks continue rehearsing Ethereum’s move to the proof-of-stake algorithm. On July 6, the merger of the two chains was worked out in Sepolia, now it’s the turn for the dress rehearsal in Goerli. Apart from temporarily disabling a third of the validators who have not installed the latest updates, the test was successful.

The final transition of Ethereum to PoS has become one step closer, however, the estimated date of the move was traditionally shifted: the complexity bomb was postponed for another two months, and the time frame on the project’s website was extended to the fourth quarter.

At the same time, 74 thousand users have already staked 13 million ETH to receive passive income.

Now the amount is equivalent to $14 billion or 11% of the total capitalization of the network.

Since the independent reservation of coins involves freezing them before the actual relocation of the network, and it is necessary to stake in blocks of 32 ETH to generate income, third-party services have gained great popularity. The leader among them was Lido, which significantly reduces the entry threshold for passive earnings, and the annual return for staking is now 4%. Moreover, instead of the deposited ETH, the service provides stETH, which can be used in staking or exchanged for other coins.

The convenience of Lido has led to the fact that the service currently provides 32% of the total volume of frozen ETH. The downside was a large share of borrowed funds, as Lido used a number of investment projects, including the infamous 3AC. The lack of liquidity led to a drop in the stETH rate against ETH.

Due to the high interdependence of a number of projects, the further separation of stETH, with a capitalization of $4.5 billion, from ETH can lead to a cascade of liquidations and even more pressure on the cryptocurrency market.

Thus, one of the operators of the exchange of stETH for ETH, the Aave platform, announced in June three potential steps to reduce risks: freezing operations with stETH, increasing the liquidation threshold to 90% and suspending borrowing in ETH. And in the largest Curve pool at 465 thousand stETH, only 172 thousand ETH remained.

Lido is a big player in the market, its problems are difficult to ignore. The situation can be saved by the rapid transition of Ethereum to PoS and the subsequent unblocking of ETH 2.0. Perhaps this will encourage developers to take more active actions.