Today I can’t help but remember this advice from the ‘90s pop superstars TLC: “Don’t go chasing waterfalls/ please stick to the rivers and the lakes that you’re used to.” Days like this, it’s hard not to feel like they were right!
In this case, people were chasing massive yields from crypto, often using DeFi solutions like Lido Staked ETH (stETH-USD).
Unfortunately, holding stETH is no longer as good as actual Ether (ETH-USD) – at least, in price. Since May, both are down over 50%, as we see below… But with stETH (blue line), you’ve given up an additional -2%, even -3%:
This caused liquidity issues that spilled over from Lido (LDO-USD) to the “crypto bank” Celsius Network (CEL-USD), where you can “deposit” lots of different cryptos to earn yield. Normally, you’d go into individual blockchains to stake those cryptos – lock them up within the network protocols – and earn those nice, fat yields… Celsius did that all for you.
Now the trouble for CEL and LDO is bringing everything else down, too!
Context: This “depegging” – stETH dropping below ETH – has emerged from a DeFi panic last month, when the TerraUSD (UST-USD) stablecoin collapsed – and cascaded into the rest of the market.
Celsius was already hampered by regulators…and had a lot of exposure to the whole UST debacle.
Bottom line: stETH is a placeholder until you can stake real ETH later this summer. So, stETH trading lower than ETH tells us traders are feeling short-term bearish on Ethereum.
ETH Hit Hardest Among The Crypto Majors
Ether fell more than 16% in 24 hours, with its major companion chain Polygon (MATIC-USD) close behind. That’s noticeably worse than Bitcoin (BTC-USD), down 14%. Cardano (ADA-USD) and Polkadot (DOT-USD), meanwhile, lost just 9% in the same time:
Since the trouble started with staked ETH, maybe it comes as no surprise that ETH itself is feeling the worst pain of the Top 20 cryptos now. And it’s not for the first time, either.
Zooming out: ETH is down more like -40% in the past 30 days versus -20% for BTC and -11% for Cardano. But it’s even worse for Solana (SOL-USD). It’s down -45% following all its network troubles – while Cardano celebrates its big upgrade this month.
What’s next: Our crypto analysts are monitoring the ETH situation closely, since “Ethereum’s Dip to $1,150 May Cause Catastrophe on Lending Market, Here’s How” – as U°Today explained on Sunday.
DeFi/staking cryptos are wreaking real havoc right now: The sooner it settles down, the softer the impact to projects building “real” applications on blockchains.
Why Bother With Staking, Then?
It’s all about yield: You can typically get way higher rates with crypto than most anything else. (It reminds me a lot of the shale-oil boom of the 2010s. Stock investors flocked to red-hot energy MLPs for fat dividends… Until the boom went bust, and the low-quality MLPs got flushed out.)
In the bull market, this sent people rushing to “crypto banks” like Celsius, Nexo (NEXO-USD), and BlockFi. Park your crypto there, and the company would stake your coins; you could passively earn 4%, 5%, 6% or more (depending on the crypto)!
If you’re more experienced/confident, you can stake your crypto directly on its blockchain. And ETH is set to become the biggest name in that game. Right now, Ethereum is still operating on a proof-of-work mechanism – like Bitcoin – but in August it’s expected to move to proof-of-stake.
But if you didn’t want to wait for ETH to complete this big “Merge,” you could turn to the DeFi, Lido Finance, that lets you do it early. While ETH has been yielding you 0%, stETH has been paying 4% or more.
Friday Was A Big News Day For Bitcoin & Crypto Payments
MoneyGram’s been around since World War II… And now when you send money internationally, you can choose to send USD Coin (USDC-USD) stablecoins on MoneyGram! Then your family or friend across borders can withdraw it as local cash, per usual.
Out of all the blockchains where USDC is available – several of the crypto majors in my table above could have provided this capability – MoneyGram chose Stellar Lumens (XLM-USD) to provide this new crypto option.
Now I’m wondering: As the stablecoin that’s actually getting positive press – and whose reserves might really be stable… Can USDC do payments better than bitcoin?
Speaking of bitcoin: Jack Dorsey of Block (NYSE:SQ) – no longer Jack Dorsey of Twitter (NYSE:TWTR) – is among the richest and most famous bitcoiners. He’s also a long-time skeptic of Web3 as the next phase of the internet, powered by blockchain…
So maybe we should have seen it coming: Dorsey’s crew is jumping ahead to build “Web5”…on the Bitcoin network. The group involved is (literally) called TBD, and it’s sort of an incubator within Block, Inc.:
Web5: An extra decentralized web platformhttps://t.co/LDW3MZ8tON
— TBD (@TBD54566975) June 10, 2022
First question: “On Bitcoin,” as in…on Bitcoin?
As a huge global blockchain – built to be more secure… but also more expensive, slower, and energy-intensive – it’ll be interesting to see how Bitcoin can help enable the future internet. Keep an eye out for blockchain and computer-science experts to make the case in the coming weeks (months, or years?).
Quote of the Day
“Pay close attention to that $24,000 level [for BTC]. If we hold it over the
next few months, start to take some shots on high-quality altcoins.”
– Luke Lango & Charlie Shrem, Ultimate Crypto
“High quality” is key, though:
According to our crypto team’s research and methodology – 98% of the cryptos in the world could soon go to zero. So, for many crypto investors, the destruction we’ve seen in the markets is FAR from over.
Tomorrow, June 14, Charlie and Luke are holding an emergency crypto update called Crypto in Crisis at 7 p.m. Eastern time.
It’s free to watch, and in return for your time, you’ll hear which off-the-radar crypto could thrive – and become one of the biggest in the world. And when you RSVP, you get their brand-new special report, 10 Widely Held Cryptos Knocking on Death’s Door.
On the date of publication, Ashley Cassell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. To have more news from The New Digital World sent to your inbox, click here to sign up for the newsletter.