One of the prominent stablecoins in the DeFi ecosystem – sUSD from the Synthetix protocol – has just experienced a severe shock, plummeting to $0.66, over 30% lower than its initial peg of $1. This is not just a single event, but the culmination of a prolonged decline over the past month – raising significant questions about the stability of both the Synthetix protocol and the collateral model of this stablecoin.
sUSD: 'Pure crypto' stablecoin, not algorithmic
Founder #Synthetix – Kain Warwick – explained that sUSD is not an algorithmic stablecoin, but a fully collateralized stablecoin backed by crypto assets, specifically SNX tokens. According to him, the sUSD peg slipping is a possibility, and the protocol has mechanisms to bring it back close to $1. However, these mechanisms are in transition and not yet fully effective, leading to recent volatility.
Root of the issue: Update SIP-420 and unintended consequences
One of the turning points causing instability for sUSD was the SIP-420 upgrade implemented on March 7, 2025. This represents a significant change in the operation of Synthetix:
Before SIP-420: Each SNX staker must take responsibility for the sUSD debt they create.
After SIP-420: Transition to a shared debt mechanism across the system.
At the same time, the collateral ratio has dropped sharply from 750% to just 200% – meaning every $1 #sUSD only needs to be secured by $2 SNX, instead of $7.5 as before. This increases capital efficiency, but weakens the incentives to maintain the $1 peg.
Chain reaction: losing peg – decreasing confidence – selling pressure on SNX
According to expert Mrinal Thakur from Okto, the aforementioned changes have collapsed the peg stabilization mechanism because SNX stakers no longer have the incentive to buy sUSD at a low price to repay their debts as they did before.
The consequence is:
The liquidity of sUSD is thin, and AMM pools are heavily skewed towards sUSD.
Price volatility has become extreme; even a small transaction can cause significant price fluctuations.
As confidence wanes, users flee the system → panic sell SNX → creating a negative feedback loop that drives the price down further.
Actual price volatility
Since the beginning of the year, sUSD has continuously slipped from its peg:
January: First drop to $0.96.
February: Continuous fluctuations.
March: There was a slight recovery at one point, but it fell back to $0.91 by the end of the month.
April: Dropped further, hitting a low of $0.66.
Currently (according to CoinGecko): The price has recovered to $0.83, but volatility remains high.
How Synthetix is coping: short, medium, and long-term solutions
Short term:
Increase sUSD liquidity through pools on Curve.
Increase rewards for asset providers on the Infinex platform (Synthetix's derivatives platform).
Medium term:
Implement a new staking model without debt to encourage users to repay debts voluntarily.
Long term:
Managing sUSD supply directly from the protocol.
Add incentives for using sUSD across the entire product ecosystem.
Market sentiment and internal warnings
Despite market concerns, Kain Warwick remains optimistic, stating this is the first time he is 'not worried about Synthetix in many years' and he has bought more SNX this year.
However, he also did not hide that 'things could get worse before they get better', and advised investors not to get 'left behind' when the market is chaotic.
Thakur, on the other hand, remains cautious: although Synthetix has around $30 million in reserves (including sUSD, USDC, and OP), the system is still very fragile, especially when market sentiment is vulnerable.
What does this mean for crypto investors?
If you are trading or holding stablecoins, this event is a clear reminder that not all stablecoins are absolutely safe, even if they are not algorithmically based. Crypto collateral models, while more robust than algorithms, can still be affected if:
The operating mechanism has changed.
Market dynamics have been disrupted.
Thin liquidity and weak market sentiment.
Users on Binance or any exchange need to regularly monitor the performance of the stablecoin they are using, especially with less popular stablecoins like USDT, USDC, or DAI.
Risk warning
The cryptocurrency market is highly volatile and carries significant risks. A stablecoin losing its peg for an extended period like sUSD is a real-world example of systemic risk. This article is not investment advice. Always do thorough research and consider before making any financial decisions related to crypto.