Price Discount on 'stETH' Reflects Some Doubt on Smooth Ethereum Merge

The current price of the derivative token implies a close to 94% chance of the Merge succeeding without major hiccups or delays, according to Enigma Securities.

AccessTimeIconAug 15, 2022 at 5:39 p.m. UTC
Updated May 11, 2023 at 6:32 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

Crypto investors are eagerly awaiting the Merge, the Ethereum blockchain’s long-awaited technology upgrade.

Most traders expect the event to go through smoothly. But the price of a popular ether (ETH) derivative token known as stETH suggests a slim chance that some glitches or delays will arise, based on a new analysis by Enigma Securities, an institutional digital assets advisory and brokerage firm.

According to Enigma, the current price of stETH – a type of ether derivative known as "staked ether," which is a token issued by Lido protocol that users can trade freely even when their ether is staked on the Ethereum blockchain – implies a nearly 6.25%-6.5% probability the Merge will come with major bugs or delays.

Enigma’s pricing model treats stETH as a bond of 1 ETH as principal that yields a 4% return annually. If the Merge is successful, an investor who bought stETH gets 1.04 ETH in a year.

With stETH changing hands at 0.973 ETH at press time, the price implies only a 93.5%-93.75% chance of the Merge going through smoothly and on time, Enigma estimates. This percentage is lower than what many market watchers are expecting because all the dress rehearsals went well.

“The market has high confidence in the Merge,” John Freyermuth, analyst at Enigma Securities told CoinDesk. “But until that risk premium shrinks to match the staking yield, stETH price supports the view that the Merge is not priced in."

Enigma Securities said the current stETH price suggests a 93.5-93.75% chance for the Merge to succeed. (Enigma Securities)
Enigma Securities said the current stETH price suggests a 93.5-93.75% chance for the Merge to succeed. (Enigma Securities)

Ethereum’s transition to a proof-of-stake consensus mechanism is set to fundamentally alter the blockchain of the second-largest cryptocurrency by market capitalization.

It will eliminate mining, reduce the network’s energy consumption by about 99.95% and turn ETH into a yield-bearing asset. At press time, the Merge is scheduled to go live at some point in September.

“I am completely confident that it will go well,” Ben Edgington, global product lead for institutional Ethereum staking service Teku at software firm ConsenSys, told CoinDesk. “Every testnet Merge that we've done and every test scenario we have run over the last six months has met these criteria for a successful Merge.”

Merge hype has helped ETH, the blockchain's native token, to surge to $2,000 over the weekend from around $1,000 a month ago.

“Right now, different actors are betting on whether or not the Merge happens, as a sentiment bet,” said Lex Sokolin, head economist at ConsenSys. “If it does happen, that shifts us to a new regime.”

Writing Off ETHPOW

The discount on stETH to ether also narrowed to around 3% from the lows of 7% in June, when the token was caught in the middle of a liquidity crisis that led to the insolvency of crypto hedge fund Three Arrows Capital and crypto lender Celsius Network.

The current stETH price shows “incredibly low-risk premia that's packed with the Merge execution risk, smart contract risks and any systemic risk,” Enigma’s Freyermuth said.

According to Enigma, crypto traders are mostly discounting the impact of a potential fork of the Ethereum blockchain by proof-of-work miners, or that an airdropped "ETHPOW" or "ETHW" token would have any significant value. The logic there is that the stETH discount has narrowed, not increased, since the possibility of a fork began to swirl through the crypto-industry discourse over the past couple weeks.


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Krisztian  Sandor

Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.

Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to to register and buy your pass now.