sUSD Drops Below $0.7 as Synthetix Stablecoin Faces Prolonged Depeg

The algorithmic stablecoin sUSD, a cornerstone of the Synthetix ecosystem, has spiraled into its deepest depeg in years, tumbling below $0.7 amid mounting concerns over its collateral mechanism and liquidity crunch.

This latest drop marks a stark deterioration from its already fragile state earlier this month, when it wobbled near $0.83.

A System Under Stress

Data from CoinGecko shows sUSD’s highest price in the last seven days at $0.9032. However, since April 14, it has dropped steadily, going to $0.86, then to $0.76, before finally hitting rock bottom on April 18 at $0.664.

At the time of writing, the stablecoin had regained nearly 2% of its value in the last hour, although the current price of $0.70 is still an 8.8% dip in 24 hours. Its performance across longer time frames is just as bad, down 29.3% over 30 days and 29.2% year-on-year.

The situation is no better with sUSD’s Optimism version. It hit a new all-time low of $0.6476 hours ago, after going down 6.9% in the past day and 32.7% over the previous month, raising fears of a potential death spiral reminiscent of Terra’s UST collapse.

Meanwhile, a modest 0.5% uptick in the price of Synthetix’s native SNX token has not stopped it from plummeting almost 26% in the last 30 days and 77% from its yearly high.

Cascading Risks

sUSD is designed to maintain a 1:1 peg with the U.S. dollar and is backed by staked SNX tokens under a collateralized debt model. However, the recent passage of SIP 420, a protocol overhaul aimed at improving capital efficiency, seems to have inadvertently destabilized the stablecoin.

The update slashed the collateralization ratio from 750% to 200% and transitioned to a collective debt pool, removing a key arbitrage mechanism: stakers can no longer profit from buying depegged sUSD to repay discounted debts.

It has seemingly resulted in a vacuum of buy-side demand. As Okto Chain’s Minal Thukral noted, the absence of a peg stability module has left sUSD vulnerable to sustained sell pressure, with liquidity thinning and concentrated AMM pools only exacerbating price swings.

The crypto community is divided on the issue. While some maintain that Synthetix’s treasury, which holds about $30 million in sUSD and other assets, could act as a backstop to stem the tide, others see little reason to hold sUSD without a clear repeg plan. Even Synthetix founder Kain Warwick seems to have embraced the dark humor of the moment, renaming his X account to “kain.depeg.”