The crypto world is constantly changing, and the “stability” of stablecoins often faces numerous challenges. On April 10, the stablecoin sUSD within the Synthetix ecosystem experienced a significant depegging, with the lowest price dropping to $0.834. It is currently priced at $0.860, deviating approximately 14% from its $1 peg. This fluctuation quickly sparked discussions within the community, with many expressing concerns that it could signal the beginning of a new round of stablecoin crises.

Mechanism Upgrade Leads to Short-Term Depegging

After the event, Synthetix founder Kain Warwick explained the situation on the X platform and revealed that he had sold 90% of his ETH holdings while increasing his position in SNX. Warwick stated that the sUSD depegging is not a sign of a systemic crisis but rather a temporary “side effect” caused by a key mechanism upgrade in Synthetix.

This marks the second depegging incident in the history of sUSD. The previous one occurred on May 17, 2024, but the reasons were different. According to blockchain security firm Chaos Labs’ analysis, the depegging last year was likely caused by a large sBTC/wBTC liquidity provider suddenly withdrawing, redeeming sUSD through Synthetix’s spot synthetic redemption mechanism, and then dumping it in the related Curve liquidity pool.

For a long time, sUSD’s peg relied on a complex debt management mechanism: users minted sUSD by staking the native token SNX, while the system maintained its 1:1 peg to the dollar through high collateral ratios and debt adjustments. With Synthetix’s strategic shift, this old mechanism has been gradually phased out, replaced by a more efficient, decentralized system under the SIP 420 proposal’s “420 liquidity pool.” The transition between the old and new mechanisms inevitably caused transitional pain, and the short-term depegging of sUSD is a manifestation of this process.

The SIP-420 proposal introduces the 420 liquidity pool, which allows SNX holders to deposit tokens into a collective pool managed by the protocol, bringing several key changes. First, stakers no longer have to bear the high debt and liquidation risks individually. Under the old mechanism, users had to maintain a 500% collateral ratio when staking SNX to mint sUSD, meaning that for every $5 worth of SNX staked, only $1 worth of sUSD could be minted. In the new system, the 420 liquidity pool reduces the collateral ratio to 200%, meaning that for every $2 worth of SNX staked, $1 worth of sUSD can be minted, boosting the minting capacity by 2.5 times. This change has attracted significant participation from SNX holders, with over 80 million SNX deposited into the pool during the whitelist period.

However, this increased minting ability directly led to a surge in the supply of sUSD. Assuming the 80 million SNX deposited is valued at around $160 million (estimating each SNX at $2), it theoretically allows for the minting of $80 million worth of sUSD. Before this, the same amount of SNX would have only minted about $32 million worth of sUSD. The sudden increase in supply, without corresponding market demand, inevitably put downward pressure on the price of sUSD. More specifically, many stakers used their minted sUSD for yield farming, for example, by participating in external strategies like Ethena Labs, Aave, or MorphoLabs. These operations often involve selling sUSD in secondary markets for other assets, further intensifying the sell pressure.

At the same time, the pegging mechanism for sUSD became inefficient due to the implementation of SIP-420. Under the old mechanism, when the price of sUSD fell below $1, there was a direct arbitrage opportunity: users could buy sUSD at a low price, then use it to pay off debt or redeem other synthetic assets (such as sBTC), making a profit and driving the price back up to $1. This arbitrage behavior was a key force in maintaining the peg. However, SIP-420 changed this dynamic. Under the new mechanism, individual debt is gradually transferred to protocol management and will be phased out over 12 months, meaning stakers no longer need to frequently adjust their debt positions to avoid liquidation. While this removes the liquidation risk, it also weakens the incentive and ability for direct arbitrage. With debt management increasingly handled by SNX Exchange, there is not enough market power to quickly correct sUSD’s price deviation using traditional methods.

Therefore, the core reasons for sUSD’s depegging can be summarized as two points: first, the significant increase in supply due to the reduced collateral ratio; second, the failure of the old peg-maintenance mechanism during the transition period, preventing the market from effectively absorbing the excess sUSD. Despite this, sUSD’s collateralized nature ensures it is not unsupported. The 200% collateral ratio means that for every $1 of sUSD, there are still $2 of SNX backing it, which is fundamentally different from algorithmic stablecoins like Terra’s UST, which rely on supply and demand adjustments without asset backing. Even if the price temporarily deviates from $1, sUSD’s overcollateralized nature prevents it from facing systemic collapse risk.

For SNX holders and sUSD users, the team has developed a contingency plan for the transition period. Synthetix officially provided additional measures via Discord, including strengthening Curve liquidity pool incentives in the short term, extending the Infinex deposit support period, and building a long-term price support system for sUSD.

“Antique Stablecoin” Depegs and Gains Attention, What Has Synthetix Been Doing in Recent Years?

To further understand the current situation of sUSD, let’s first review the development history of stablecoins. The origin of stablecoins can be traced back to 2014, the year when the first stablecoins were born: Tether’s USDT, BitShares’ bitUSD, and Nubits. Although bitUSD and Nubits failed to withstand the test of time and gradually faded from history, USDT survived until today thanks to its first-mover advantage and strong market adaptability, becoming the most traded stablecoin in the world. However, USDT’s success was not without difficulties. Its price significantly depegged in 2017. But to this day, USDT still firmly holds the top position in the stablecoin market.

2018 was another key milestone in the development of stablecoins. This year saw the rise of DeFi, which gave birth to many iconic stablecoins, including MakerDAO’s DAI, Synthetix’s sUSD, and Terra’s UST. Meanwhile, the CeFi sector also saw the second wave of the stablecoin boom, with USDC from Circle, TrueUSD (TUSD), Gemini’s GUSD, and Paxos’ PAX all making their debuts. These projects each had their own unique features: DAI achieved decentralized pegging through over-collateralizing ETH, sUSD supported the synthetic asset ecosystem via SNX’s high collateralization, while USDC was backed by redeemable fiat reserves. During this period, different types of stablecoins gradually diverged into two main paths: collateralized and algorithmic. Collateralized stablecoins rely on real-world assets as value backing, offering relatively high stability but being susceptible to price fluctuations of the collateral. Algorithmic stablecoins, on the other hand, adjust supply and demand through smart contracts to maintain the peg, theoretically offering higher capital efficiency but becoming unstable during market fluctuations.

In 2021, DeFi projects generally recognized the strategic value of owning a stablecoin, and many protocols began to heavily develop their stablecoin ecosystems. However, Synthetix chose to gradually marginalize sUSD, which, in hindsight, was undoubtedly a major misstep. The SIP-420 proposal passed in early 2025 brought new opportunities to sUSD. The new mechanism introduced a collective liquidity pool model, reduced the collateral ratio to 200%, and planned to eliminate $62 million of historical debt over 12 months, significantly improving capital efficiency and system security. The old debt destruction mechanism failed, while the new stable module was not fully in place, causing this depegging as a result of the transition period.

Looking at the present, the competition in the stablecoin space remains intense. Although sUSD is still the third “oldest” stablecoin in the crypto space, its position has diminished significantly. However, its long existence (i.e., the Lindy effect) gives it unique resilience, and today’s mechanism adjustments may simply be another upgrade on its evolutionary path.

In the short term, the price of sUSD may continue to fluctuate within a 5-10% discount range, but with ample reserves in the treasury, the possibility of a complete collapse is relatively low. In the long run, as the new mechanism takes effect, sUSD is expected to regain its position within the Synthetix ecosystem. The history of stablecoins teaches us that the true survivors are often those who continuously adjust through the storms.

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