stETH Depeg: What It Means When stETH Trades Below ETH

A stETH depeg is when one stETH changes hands on the open market for less than one ETH. It sounds alarming, and it is usually misread. stETH is not a stablecoin with reserves that can go missing. It is a claim on staked ETH that Lido still redeems one for one - the discount is the market charging you for not wanting to wait in the exit queue.

Why would anyone sell at a discount?

Because leaving through the front door takes time. You burn stETH, you join a withdrawal queue, and you get your ETH when your turn comes - normally within a week, occasionally much longer. Selling on Uniswap or Curve is instant. Someone who needs ETH today will accept a little less to skip the queue, and someone with patience will happily buy at 0.99 and redeem at 1.00. That arbitrage is what pulls the price back up, which is why discounts tend to be small and short.

What happened in 2022?

The famous one. In June 2022 Lido withdrawals did not exist yet - the Ethereum upgrade that enabled them was still a year away - so the only way out of stETH was to sell it. When several large lenders and funds unwound positions at the same time, they all sold into the same Curve pool, and stETH traded as low as about 0.94 ETH. Nothing was broken: everyone who held on was made whole once withdrawals opened in 2023. But the episode is worth remembering, because it shows what happens when a token's only exit is a market.

Does a discount cost you anything?

If you are holding stETH and plan to redeem it, no. You get ETH one for one, and the market price along the way is noise. If you have borrowed against stETH on a lending market such as Aave, yes - those platforms price your collateral at the market rate, so a discount shrinks your buffer and can tip a loan into liquidation. That mismatch, not the token itself, is where people actually lose money during a depeg.

The practical rule: never size a loan against stETH as if it were worth exactly what ETH is worth. Leave room for a few percent of discount on a bad week. Next: the stETH to ETH ratio and the real risks of holding stETH.