I’d parked some ether in Lido and received stETH — liquid staking, earn yield, stay flexible. The pitch was one-to-one with ETH. For months it was. Then the chart showed stETH trading at a discount and Twitter explained in all caps that this was fine, actually, arbitrage would fix it, definitely fine. I wasn’t sure what a depeg was. I was sure my stomach disagreed.
What’s supposed to happen
You stake ETH. You get an LST — stETH, rETH, cbETH — a token that grows with rewards and can be traded or used in DeFi. In calm markets, 1 stETH ≈ 1 ETH on exchanges. The LST is a receipt, not a different asset class.
When the receipt goes on sale
A depeg means the LST trades below par. Everyone wants plain ETH now but redemptions are slow or scary — so they sell stETH at a discount on the open market. Leveraged funds get liquidated and dump more. The discount widens.
I wasn’t running a hedge fund. I was a person who thought “liquid” meant “same price.” Liquid means tradeable, not pegged.
An LST is ETH-shaped, not ETH-identical — especially on the day you need to sell.
Why beginners should care
If you use stETH as collateral to borrow, a depeg can liquidate you even when “ETH” hasn’t moved the way you think. If you panic-sell the LST at 0.95, you locked in a loss arbitrageurs might have avoided.
The peg often recovers when fear fades and redemptions clear. Often isn’t always, and eventually isn’t when you need it.
I still use LSTs for small positions where I understand the trade-off. I don’t treat them as interchangeable with ETH in a crisis, and I don’t borrow against them without modelling a bad depeg day. Medium risk means the math can turn on you while you’re reading Twitter say it’s fine.
Nobody handed me a one-pager on LST depegs before I held one. Consider this that one-pager — with the uncomfortable personal footnote attached.