Synthetix Founder Kain Warwick Urges sUSD Stakers to Step Up and Restore Peg

As sUSD continues to trade below its intended $1 peg, Synthetix founder Kain Warwick has urged stakers to step up and help restore stability

Synthetix founder Kain Warwick has urged SNX stakers to help restore sUSD’s peg after recent measures failed to fully stabilize the stablecoin.

As part of a new initiative called the 420 Pool, SNX holders who lock their sUSD for 12 months will earn a share of 5 million SNX tokens.

The new staking mechanism, which is designed to mobilize existing capital within the ecosystem, was announced on April 21.

sUSD, which is an algorithmic stablecoin backed by the Synthetix (SNX) token, has been trading below its intended $1 peg for several weeks.

The depeg has been triggered by recent changes to how sUSD is issued and backed. Earlier this year, Synthetix introduced a major protocol update, known as SIP-420, to boost capital efficiency.

The update slashed the collateral ratio for minting sUSD from 500% to 200% and moved to a shared, protocol-owned staking pool.

While the move made it easier to mint sUSD, it also quickly threw off liquidity balances as the stablecoin pushed well below $1. At press time, it was trading at $0.7714 and was down 4.2% in the past 24 hours.

In a bid to address the issue, the Synthetix team has already rolled out a new liquidity initiative. However, the response so far hasn’t been enough to turn the tide.

In a series of posts on X, Warwick said the current process, which involves sending sUSD directly to a contract, is “extremely not ideal.”

Once the user interface goes live in the coming days, staker participation will be closely monitored.

If engagement remains low, the protocol may shift from incentives to enforcement.

“We tried nothing which didn’t work, now we have tried the carrot and it kind of worked but I’m reserving judgement. I think we all know how much I like the stick so if you think you will get away with not eating the carrot I’ve got some bad news for you,” he said.

sUSD is a stablecoin designed to maintain a 1:1 peg with the U.S. dollar using crypto-based collateral and price feeds from Chainlink oracles.

However, unlike fiat-collateralised stablecoins such as Tether and USDC, which are backed by commercial paper, T-bills and other assets, any imbalances in protocol mechanics can quickly throw off liquidity balances and move sUSD off its peg.

Earlier this year, Chainlink’s dollar price feed on Optimism Mainnet was briefly manipulated, causing several stablecoins, including sUSD, to depeg briefly.

In March 2023, Circle’s USDC fell to $0.87 after revealing that $3.3 billion of its reserves were tied up in the collapsed Silicon Valley Bank.

Recently, TUSD lost its peg to the U.S. dollar in January amid reports that its issuer failed to promptly release a collateral audit.