Staked Ether Price Discount Widens Ahead of Ethereum Merge

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As Ethereum approaches one of the most significant upgrades in its history—the Merge—market dynamics around staked ether (stETH) are shifting dramatically. The discount between stETH and ether (ETH) has widened to its largest level since June 2022, reflecting growing uncertainty, strategic positioning, and market volatility ahead of the transition to proof-of-stake (PoS).

According to data from Dune Analytics, the price of stETH—issued by liquid-staking platform Lido—traded at a 4.5% discount to ETH, equivalent to 0.954 ETH per stETH. This growing gap is more than just a pricing anomaly; it reflects deepening investor concerns and tactical shifts in anticipation of potential network forks and post-Merge token distributions.

Why Is the stETH Discount Expanding?

The widening discount can be attributed to several interrelated factors, chief among them being traders’ efforts to position themselves for a potential Ethereum proof-of-work (PoW) fork, known as ETHPOW.

While the Ethereum community largely supports the shift to PoS, a faction of miners intends to maintain the existing PoW consensus mechanism. If successful, this would result in a network fork at the time of the Merge—currently expected between September 13 and 15—creating two separate chains: one running on PoS with ETH as its native token, and another on PoW with ETHPOW.

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Crucially, only holders of native ETH—not staked derivatives like stETH—would be eligible to receive ETHPOW tokens in an airdrop scenario. This creates a strong incentive for stETH holders to swap their tokens back into ETH before the Merge.

Each stETH token represents one staked ETH and is redeemable post-Merge. However, until withdrawals are enabled on Ethereum’s network (a feature not activated at launch), stETH remains a non-redeemable derivative. In the meantime, users can trade stETH on decentralized exchanges like Curve Finance.

Market Reactions and Liquidity Shifts

The stETH/ETH liquidity pool on Curve has come under increasing strain due to these strategic exits. As of the latest data, the pool holds approximately 157,361 ETH (22.94%) and 528,460 stETH (77.06%), indicating a significant imbalance. This skew makes it harder for large holders to exit stETH positions without impacting prices, amplifying downward pressure.

This situation echoes earlier market stress seen in May and June 2022, when similar imbalances contributed to broader crypto instability following the collapse of Terra and Three Arrows Capital.

The decentralized lending protocol Aave recently responded to rising demand for ETH by halting new ETH borrowing ahead of the Merge. The move was designed to prevent liquidity risks caused by a surge in leveraged positions tied to ETH speculation.

However, this decision had ripple effects. According to Adam Cochran, founder of Cinneamhain Ventures, the restriction prompted bankrupt hedge fund Three Arrows Capital to withdraw $33 million worth of stETH from Curve’s liquidity pool—further destabilizing the market.

“Aave pausing ETH markets causing Instadapp to unwind massively in the stETH/ETH pool, and 3AC pulled their pool liquidity making it worse... Did I just wake up back in July?”
— Adam Cochran (@adamscochran)

Such reactions highlight how tightly coupled DeFi protocols are—and how quickly sentiment can shift when systemic risks emerge.

Investor Sentiment: Safety Over Staking Rewards

Griffin Ardern, a volatility trader at Blofin, notes that uncertainty surrounding the Merge is pushing many investors toward holding native ETH rather than staked derivatives.

“The Ethereum Merge may introduce additional uncertainty and risk,” Ardern explained. “Holding ETH would be more appropriate than stETH. In addition, stETH is still in the staking process and has not been unlocked.”

He draws an analogy to traditional finance: “In a downward bear market, it is better to hold a spot [ether] than to hold a bond of the same face value.”

This preference for liquidity and control over yield reflects broader risk-averse behavior during periods of network transition.

Lido’s Response to Market Volatility

A spokesperson for Lido addressed the fluctuating stETH/ETH exchange rate, emphasizing that such volatility is expected during major network events.

“The stETH/ETH exchange rate fluctuation comes from a larger than normal movement of liquidity associated with the Merge,” the spokesperson told CoinDesk. “Users are positioning themselves according to different strategies. It is to be expected with this event and can also be observed in the volatility of other liquid staking derivative prices.”

Importantly, stETH is not a stablecoin and was never designed to maintain a strict 1:1 peg with ETH. Unlike USD-backed tokens such as USDC or DAI, stETH’s value is influenced by market sentiment, redemption expectations, and macro-level DeFi conditions.

However, the discount has become a key indicator for analysts monitoring systemic stress in crypto markets—especially after its role in earlier crises involving Celsius and Three Arrows Capital.

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Core Keywords

Frequently Asked Questions (FAQ)

Q: What is stETH?
A: stETH (staked ETH) is a token issued by Lido that represents ether locked in Ethereum’s proof-of-stake validation process. Each stETH token is backed by one staked ETH and earns staking rewards over time.

Q: Why is stETH trading at a discount to ETH?
A: The discount reflects market uncertainty around the Ethereum Merge, including fears of missing out on forked tokens like ETHPOW and reduced liquidity in trading pools. Investors are selling stETH to hold native ETH for strategic positioning.

Q: Can I redeem stETH for ETH now?
A: No. While stETH accrues staking rewards, withdrawals of ETH from the Beacon Chain are not yet enabled. Redemption will be possible after post-Merge network upgrades, likely in phases starting months after the initial transition.

Q: What happens to stETH after the Merge?
A: After the Merge, stETH will continue to represent staked ETH. Once withdrawal functionality is activated via future upgrades (e.g., Shanghai upgrade), users will be able to redeem their underlying ETH.

Q: Will I get ETHPOW if I hold stETH?
A: Most experts believe only holders of native ETH on wallets or exchanges supporting the fork will receive ETHPOW. Derivatives like stETH may not qualify unless specific support is implemented by platforms.

Q: Is the stETH discount a sign of another crypto crash?
A: While concerning, the current discount reflects event-driven speculation rather than systemic collapse. However, sustained deviations could signal deeper DeFi instability if confidence in liquid staking erodes.

The Ethereum Merge represents not just a technological milestone but a catalyst for complex market behaviors. As traders navigate fork risks, liquidity constraints, and yield trade-offs, assets like stETH serve as barometers of broader sentiment.

Understanding these dynamics is crucial for anyone invested in Ethereum’s future—or watching how decentralized markets respond to transformational change.

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