Celsius Withdrawal Jam

Celsius has jammed Ethereum’s validator withdrawal queue shut for the next 14 days, the longest delay since the queue cleared out for the first time post-Shapella in October! Are liquid staking tokens (LSTs) now flirting with a risk of depeg?

The bankrupt cryptocurrency lender announced yesterday that it would be unstaking its ETH to liquidate for the benefit of creditors. Over 550k ETH – 87% of the withdrawal queue – is attributable to Celsius, and a further 500k in ETH remains to be unstaked.

LSTs have relied on their ability to expediently redeem staked ETH for vanilla ETH post-Shapella as a backstop to any potential depegs; however, with the withdrawal queue now clogged, this is no longer the case.

In what could become the greatest challenge of Lido’s ability to maintain peg since the collapse of 3AC forced their liquidation of stETH into a market without withdrawals enabled, billions in levered stETH finds itself paired with thin onchain and virtually non-existent offchain liquidity.

Next week’s impending spot BTC ETF decision lays the groundwork for heightened volatility across broader crypto markets, further increasing the potential that an LST depeg could occur!

While these developments should strike fear into the hearts of anyone borrowing against LSTs (especially those who are highly levered and looping ETH staking yields), they also represent a potential opportunity for buyers purchasing at a discount in the midst of a depeg with the knowledge that withdrawals and at-par redeemability for ETH are an eventual give-in.