Ethereum Staking Unstake Queue Disrupts Market Stability

The sequence of events leading to an abnormal ETH unstaking queue begins with Justin Sun withdrawing liquidity from Aave, which causes a sharp increase in ETH borrowing rates due to rising utilization. This renders the stETH-loops unprofitable, prompting some to deleverage. Part of the sold stETH enters the withdrawal queue, and its parity diverges by approximately 0.30%, as holders sell to avoid queue delays. Loopers face the choice of accepting about a 30 basis point loss or continuing to lose money until the price recovers. Oracle pricing based on redemption rather than market rates causes lenders to be stuck for around 18 days, heightening the risk of liquidations and further disrupting stETH's peg to ETH. Liquidity in stETH trading pairs is gradually drying up, which might signal a strategic move to seize depeg positions, though that remains uncertain.