A controversial new cryptocurrency has caused havoc in the digital asset market, but this time, it's not a stablecoin.
Stacked ether, or stETH, is a token that's supposed to be worth the same value as Ether, but over the past few weeks, it's been trading at an increasing discount to the second largest cryptocurrency, fueling the fires of liquidity crisis in the cryptocurrency market.
Last Friday, stETH dropped to 0.92 Ether, which means an 8% discount on Ether, the cryptocurrency shown on the Ethereum network.
But what is StETH, or what can be translated in Arabic into a conjoined ether?
In Arabic, each stETH token represents a unit of Ether that has been stored or deposited, in what is called a Beacon Chain.
Ethereum, on the other hand, the network on which Ether is based, is in the process of being upgraded to a new version that aims to be faster and cheaper to use, while the torch chain is This is a test environment for this upgrade.
Staking, or strung, refers to a practice in which investors freeze their tokens for a period of time to contribute to the security of the crypto network. In return, they receive rewards in the form of interest-like returns.
The mechanism behind this is known as Proof of Stake, which is different from Proof of Work or mining, which requires a lot of computing power - and energy.
To participate in the current Ethereum upgrade, users must agree to secure a minimum of 32 Ether even after upgrading the network to a new standard, known as Ethereum 2.0.
However, a platform called Lido Finance allows users to share any number of Ether and get a derivative token called stETH, which can then be traded or loaned on other platforms.
It is an important part of decentralized finance, which aims to reshape financial services such as lending and insurance using blockchain technology.
StETH is not a stablecoin like Tether or terraUSD, the algorithmic stablecoin that collapsed last month, but rather a Proof of Debt note that allows stETH holders to redeem their cryptocurrency In exchange for an equivalent amount of Ether once the upgrade is completed.
