The sUSD Stablecoin by Synthetix is Having Its Second De-pegging Episode for the Past Month

This time, the asset-backed stablecoin fell under $0.90, with a low around $0.83. The sUSD stablecoin issued by Synthetix has fallen below $0.90, with a low around $0.83.

The sUSD stablecoin by Synthetix is having its second de-pegging episode for the past month. This time, the asset-backed stablecoin fell under $0.90, with a low around $0.83.

sUSD is a stablecoin issued by Synthetix on a relatively small scale, with only 30.3M in circulating supply. For sUSD, this is the second de-peg since the end of March, for a total of three de-pegs in the past month. The asset has a five-year history with much deeper crises and lows of $0.40, lining up among the riskier stablecoins.

The price levels of sUSD remained relatively flat during the 2023 bear market, but de-pegs resumed after market volatility increased. The current event arrives after Synthetix doubled the supply of sUSD in one month, by encouraging SNX token staking.

The current supply of sUSD stablecoins is around 10% of the levels from 2021, when the supply peaked above 294M tokens. Synthetix tried to revive sUSD after the supply fell to a recent low of only 15M tokens. At that time, the stablecoin sank to lows of $0.92-$0.91 and Synthetix had to intervene and explain the de-peg. According to the stablecoin issuer, sUSD is still in a transitionary period, where de-pegs may be expected, and the protocol will work toward stabilizing the asset again.

Synthetix aims to rebuild assets

The current expansion of sUSD is tied to the Synthetix 420 Pool, where former SNX stakers can deposit more tokens and receive passive income. Previously, Synthetix worked as a DeFi protocol, where traders had to manually control their debt, often leading to liquidations.

Previously, individual wallets could mint sUSD with a collateral ratio of 750% for SNX deposits, meaning each $7.50 in SNX minted one sUSD. Currently, the 420 pool mints sUSD based on all the deposited tokens, with the intention of bringing the collateral ratio down to 200%. In the coming year, there will be no quick mechanism to buy sUSD at pennies for the dollar, hence the risk of additional de-pegs.

The effect of sUSD may be limited, as the token mostly uses other DEXs to trade against USDT and USDC. However, the new minting model tests the approach of Synthetix to generate and retain a reliable stablecoin.

Every SNX owner that deposits into the 420 pool will have their debt forgiven over a 12-month period. Early exits will incur a penalty, so the current de-peg will not lead to an outflow of SNX staking.

Users who stake SNX in the new pool will have to wait for a predetermined period to have their previous debt waived. In the meantime, the deposited SNX is used to mint sUSD, with a 500% over-collateralization ratio.

Currently, Synthetix has only regained $74M in value locked, down from over $2B during the 2021 bull market. The expanded supply of sUSD in the past month arrives during a golden age for stablecoin issuance and usage. However, smaller projects relying on crypto collaterals remain riskier.

After the news of the de-peg, SNX traded at $0.63, near a three-month low. The Synthetix project sits outside the narrative of RWA protocols, and operates as a collateralized stablecoin issuer offering passive income. Synthetix remains one of the most active issuers for tokenized RWA, though its token lags behind ONDO and OM, which are now taking the bulk of mindshare and trading.

The project also has support from the Synthetix DAO, with over $32M in its treasury. The DAO carries a diverse portfolio with 1M USDC, $731K in SNX tokens, and the remainder in various stablecoins and even meme tokens like PEPE. Synthetix is one of the oldest protocols, having survived multiple market cycles since 2018. For sUSD, the risk may be short-lived, but the protocol users may have stressful days ahead, combined with the general crypto market volatility.