Lido today warned staked Ethereum, or stETH, holders that the token’s peg to Ethereum has slipped, leaving them at risk of having their collateral liquidated, or sold, to make up the difference.

When Lido, a pooled staking protocol, initially sent its warning on Twitter, the discount was 4.2% and went up to as much as 5% before falling again.

Currently, 1 ETH can be exchanged for 1.0248 stETH through the Curve protocol, meaning it’s trading at a 3% discount relative to Ethereum. The stETH price surged as people who had staked it in the Anchor lending protocol, which runs on the all-but-defunct Terra blockchain, rushed to retrieve it on Friday.  

As of this writing, the Terra network has been halted twice in the past day, an attempt by its developers to save the network’s native assets from a death spiral caused by Terra’s UST stablecoin losing its peg to the dollar.

Terra’s collapse has had reverberating effects across the entire crypto market. For instance, while the network was halted, it would have been impossible for Lido users to retrieve their stETH. 

Lido eventually offered advice on how to get stETH off the Terra blockchain, but the damage was done.

As long as stETH is trading at a discount, people can redeem their stETH for more ETH than they initially deposited. That means there wouldn’t be enough ETH in the pool to back everyone’s stETH.

For people who have only…

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